Employees Who Refuse to Return Will Not Reduce Forgiveness – Monday, May 4, 2020 10:26AM

On Friday the CPA governing authority, the AICPA, urged the Treasury Department and the SBA to issue the long-awaited guidance on the forgiveness aspect of PPP loans.  The release stated regarding CPA firms, “They and their clients say that the lack of guidance makes it difficult for them to make critical decisions on important matters, such as staff retention.”  This is, unfortunately, why all our answers to your questions right now are qualified with, “as best we know at this time!” 

The plea from the AICPA did not prompt the SBA to miraculously issue the regs over the weekend; but they did dribble out a little information in the form of 3 new FAQs.  The one that we care about is FAQ #40.  If you try to bring all your employees back but someone refuses to return, that should not reduce your PPP loan forgiveness.  Please note in green that you need to make the offer to rehire in writing and retain their rejection for your records, or if the rejection is verbal, note it on your documentation with dates and details and retain that for your records. Keep in mind, however, that although the employee who refuses to return won’t negatively affect your employee count at 6/30 according to this new FAQ, without a full staff you are unlikely to be able to spend the requisite 75% of the funds on payroll and so some of the funds might not be fully utilized within the 8 weeks.  So although your forgiveness calculation won’t be limited by a reduction of staff, it is still limited to the amount you spend on payroll 75% and rent-utilities-mortgage interest 25% during the 8 week period.

40. 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.