BA Guidance on PPP Loan Forgiveness When Employees Decline Return to Work Offer

Businesses that received Paycheck Protection Program (PPP) loans can exclude laid-off employees from loan forgiveness reduction calculations if the employees turn down a written offer to be rehired, according to guidance issued on May 3, 2020, from the SBA, in consultation with the Treasury Department. The guidance was among three new questions the SBA added to its PPP Frequently Asked Questions (FAQ) file.

According to the guidance, SBA and Treasury plan to issue a new rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the loan forgiveness reduction calculation. The interim final rule will specify that a borrower may exclude an employee from loan forgiveness calculations if the borrower made a good-faith, written offer of rehire and documented the employee’s rejection of that offer. The guidance does not specify what form that documentation should take. Employees who reject good-faith offers of re-employment may find themselves ineligible for continued unemployment benefits.

The SBA’s FAQ #40 provides expressly:

FAQ – Question #40: 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.

The information contained in this post may not reflect the most current developments, as the subject matter is extremely fluid and constantly changing. Please continue to monitor Yeo & Yeo’s COVID-19 Resource Center for ongoing developments. Readers are also cautioned against taking any action based on information contained herein without first seeking professional advice.