- May 7, 2020
The U.S. Treasury Department (Treasury) and Small Business Administration (SBA) continue to provide updated guidance on compliance with the Paycheck Protection Program (PPP) in the form of Frequently Asked Questions. Those FAQs can be found here. Interim Final Rules are still to be issued.
We have prepared a PPP Loan Bible with a Compilation of Critical Documents which can be found here.
Some businesses were required to shut down or drastically curtail operations in late March 2020 when States began restricting non-essential business operations through stay-at-home and other emergency declaration orders. Those businesses temporarily or permanently laid off employees, but then received PPP loans in April which, in order to be forgiven, require at least 75% of the loan proceeds to be spent on payroll costs over the eight-week period after receipt of the funds. When businesses attempted to re-hire their laid off employees, including in some instances to pay them even through the business was still not permitted to, or chose not to, operate (e.g. hair salons, restaurants), those employees declined the offer because they are receiving higher compensation through enhanced unemployment benefits. Thus, businesses are concerned whether their PPP loan will be forgiven if 75% of the proceeds cannot be spent on payroll costs within eight weeks. Frequently Asked Question #40 addresses that issue.
Frequently Asked Question #40 is: Will a borrower’s PPP loan forgiveness amount be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
SBA and Treasury still intend to issue a “interim final rule” relating to this issue. The interim file rule will specify that, to qualify, for this exception, the borrower must have a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that the employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
Therefore, businesses should keep good written records of their good faith, written offers to rehire employees and the employee's decision regarding whether to be rehired. Businesses should work with their banks to ensure they are fulfilling all requirements to have their PPP loans forgiven and contact the attorneys at Burke, Warren, MacKay & Serritella, P.C. for further guidance on these and other issues.