Treasury Department and SBA Answer PPP Loan Forgiveness Question
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One of the primary concerns of employers that have been receiving loans under the Paycheck Protection Program is to make sure that the loan is forgiven.
One key aspect of ensuring forgiveness is that the borrower/employer must spend 75 percent of the loan proceeds on payroll. Many employers have wondered how to address the situation where an employee that was laid off rejects an offer to return to work. The Treasury Department and Small Business Administration have answered that question in an update to the FAQ on Sunday, May 3, 2020.
Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made 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 employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
Documentation will be critical. The employer/borrower must document both the offer to return to work and the employee’s rejection.