As businesses prepare to bring their staff back to work after COVID-19 halted the economy, they face a new challenge – employees who refuse to return to work. For many laid-off employees, their unemployment payments are more than their paychecks working full-time. Employees are now incentivized to continue to collect unemployment payments instead of returning to their previous jobs. As a result, many Paycheck Protection Program (PPP) loan borrowers are left wondering if a laid-off employee’s refusal to return to work, despite an offer to be rehired for the same salary/wages and same number of hours, will reduce their loan forgiveness amount.

PPP loan forgiveness is based in part on each company’s retention of employees during the COVID-19 pandemic. If a company’s headcount is reduced between February 15, 2020 and April 26, 2020, loan forgiveness will be reduced. However, reinstating employees by June 30, 2020 will not reduce the loan forgiveness amount. Given the fact many employees are at risk of declining to return to work, employers are reasonably concerned about loan forgiveness.

Under the Small Business Administration (SBA) and Treasury’s ability to grant “de minimis” exemptions from the CARES Act’s limits on loan forgiveness, borrowers can exclude laid-off employees from their loan forgiveness calculation if employees decline the offer to be rehired. This proposed rule specifies in order to qualify for this exception and preserve PPP forgiveness, the loan borrower must have made a good faith, documented offer of rehiring and the employee’s rejection must also be documented. It’s important to note employees who turn down reemployment offers may forfeit their eligibility for continued unemployment payments.

The SBA and Treasury are anticipated to issue an interim final rule providing more information about the “de minimis” exemptions. As we wait for this guidance, employers should prepare for employee refusals to work and be ready to document them. Having a plan in place will help borrowers submit informed loan forgiveness applications. For more information about PPP loan forgiveness and your business, contact the advisors at Doeren Mayhew today.