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Newly Released Guidance on Rehiring Employees for PPP Borrowers

On May 3, 2020, the SBA and the US Department of the Treasury released new guidance to assist businesses with calculating the forgiveness amount for Paycheck Protection Program (PPP) loans, with respect to employees who reject an offer to be rehired by a PPP borrower.

Question 40 of the FAQs found here.

The FAQ clarifies that in order for a borrower to avoid having their forgiveness amount reduced for an employee that was laid off, the borrower must offer, in writing, to rehire the employee at the same salary/wages and hours. More specifically, for a borrower to qualify for this exemption, the borrower has to make a good-faith, written offer to rehire such an employee and the borrower must document the employee’s rejection of that offer. Importantly, the FAQ notes that if the employee rejects this good-faith offer from the borrower for re-employment, such employee may jeopardize their eligibility for ongoing unemployment compensation.

The guidance comes in response to a growing concern that employees who have been furloughed or laid off as a result of the COVID-19 pandemic will decline offers of reemployment due to the fact that unemployment benefits may meet or exceed their regular wages. Under the CARES Act, employees who qualify for full or partial unemployment benefits will automatically be eligible for Federal Pandemic Unemployment Compensation (FPUC), a $600 supplement that will be available through July 31, 2020. Because the average weekly unemployment benefit maximum in most states is around $300, the additional FPUC benefit would entitle many workers to benefits that may total more than $900 per week. As such, the guidance is intended to provide assurance to PPP borrowers who may have difficulty satisfying the employee retention requirements necessary to obtain full forgiveness of the PPP loan.

Nonetheless, a number of questions still remain. Typically, employees are ineligible to receive unemployment benefits if they voluntarily separate from an employer or if the employer has work available for them to perform. However, the CARES Act dramatically expanded the circumstances in which an individual may be eligible for unemployment compensation if they are unable or even unwilling to work due to certain COVID-19-related reasons. For example, the CARES Act expands unemployment eligibility to employees who must quit their job as a direct result of the COVID-19 public health emergency. The Department of Labor issued guidance indicating that these eligibility criteria applies only to individuals who quit their job due to “specific, credible health concerns,” such as where an employee has recovered from COVID-19 but has lingering health problems that make them unable to perform their job with or without reasonable accommodation. However, it remains unclear how state unemployment agencies will apply these eligibility criteria and distinguish between employees who may quit their jobs simply to access higher benefits.

While the FAQ notes that regulations will be forthcoming to implement this guidance, in the interim, we recommend employers:

  1. Make all offers to rehire laid-off employees in writing;
  2. Ensure that all rehire offers be for the same salary/wages and hours that each employee previously made/worked;
  3. Establish a process to document a laid-off employee’s acceptance or rejection of an offer to rehire; and
  4. Inform each laid-off employee that receives a rehire offer of the language in FAQ 40, specifically “that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

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