Yesterday, the SBA issued new guidance on the PPP loan program that owners and operators have both welcomed and criticized for the accessibility of the funds and rules regarding compliance to make the loan fully forgivable. Twenty states and counting have announced a reopening of on-premise dining, and all of them are restricting capacity in a range from 25% to 50%, limiting to outdoor-only, or a cap on the number of guests per square foot.
In order for the PPP loan that is maximized at 2.5 times monthly average payroll to be 100% forgivable, a business has to rehire the same number (not necessarily the same individuals) of full-time employees that were used to determine their PPP loan amount. However, with a smaller staff needed for reduced sales and employees possibly making more on unemployment, many operators questioned how they would get their staff levels back to the same level as before.
The new information from the SBA says that businesses have to 'make a good faith' effort to bring employees back and communicate they may lose their unemployment standings if the employee does refuse. If operators meet these criteria, then having fewer full-time employees as before would not be a penalty resulting in a portion of the loan amount to switch from a forgivable grant to a loan that must be paid back. The full text reads:
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.
Employers should keep all communication in writing and have ready to present if employees refuse to return to work when it comes time to ask for any PPP loans to be forgiven.
Additional guidance that was issued included:
-Safe harbor repayment deadline has been extended to May 14th, 2020 for those that applied to the PPP loan prior to April 24, 2020
-Employers must count all of its employees and the employees of U.S and foreign affiliate employees absent a waiver of or an exception to the affiliation rules.
-Student-workers will count towards determining the number of employees unless part of a defined Work-Study program.
The information above is meant to be educational only in nature and a professional in law and/or tax accountant should be consulted before making any business decision.