PPP Loan Forgiveness When Employees Refuse to Return to Work

May 12, 2020 Posted by: Category: Blog No comments

What if your employees don’t want to come back to work because the unemployment benefits are too good?   The federal government is supplementing unemployment benefits with an additional $600 per month for 3 months and some employees may make more money on unemployment than if they went back to work.

This choice not only affects your ability to operate, but it could negatively impact your loan forgiveness under the PPP Program.

Fortunately, the SBA has come up with a solution to the PPP loan forgiveness.

The Small Business Administration (SBA) has come out with FAQ #40 as follows:

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 a 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.  (cited from the SBA’s PPP Loan FAQs here)

In English, this means you should make a written offer to hire them back, then make note that they have refused the offer to return to work.  Since the employee may only verbally tell you they refused to return, I recommend that you send them a letter in return indicating their refusal and keep this document in their file.

I’m not sure how unemployment will find these individuals, you may be asked to verify their ability to work and or refusal.

Frankly, I think employees are being short-sighted with this refusal to work.  Besides losing these unemployment benefits, as an employer, you may not want to rehire them after the benefits end.  And considering that we may be facing a recession coming out of this crisis, there may be fewer jobs to go back to.

 

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About 

Paul Dion - Speaker, Author, and Tax Advisor - has been planning and preparing returns for business owners for over 25 years with a specialty in helping real estate agents and investors. His passion is to help business owners legally pay the least amount of tax using court-tested and IRS-approved tax strategies. In addition, he continues to advance service offerings to include income saving strategies designed to deliver higher profits to your business.