IMPORTANT CARES ACT UPDATE:  PPP Loan Forgiveness & Laid-off Employee(s)

As we work with employers that received Paycheck Protection Program Loans (a “PPP Loan”) under the CARES Act, a recurring question has been whether an employee’s refusal to return to work will affect the employer’s ability to have the PPP Loan forgiven.

The Treasury has now issued additional guidance regarding the impact of layoffs on the headcount calculation for purposes of loan forgiveness. Specifically, Treasury FAQ #40 discusses whether an employer’s PPP Loan forgiveness amount would be reduced if the employer laid-off an employee, then offered to rehire the employee but the employee declined the offer.

. . . 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.

Based on this guidance, there should be no adverse impact on an employer’s “headcount” for purposes of PPP Loan forgiveness where the business initially laid-off a worker, but then extended the worker a written offer to return and the worker rejected the offer. However, the business should keep a record of the worker’s rejection of the offer just like all other PPP Loan related documentation.

Additionally, under the PPP Loan forgiveness guidance, wages do not have to be paid to the same employee. In other words, if an employee declines your offer of rehire, the business may hire another applicant to replace the employee who declined to return and count those wages in the calculations for the relevant period.