Q: We offered to rehire a laid off employee—which they declined—after being approved for a Paycheck Protection Program loan. Will the forgivable amount of our loan be reduced?
A: No. While the U.S. Department of the Treasury and the U.S. Small Business Administration have yet to release final guidance on PPP loan forgiveness, initial guidelines address this situation.
Created through the Coronavirus Aid, Relief, and Economic Security Act and recapitalized last month by Congress, the program's 1% interest loans are forgivable if used for payroll and certain other expenses such as mortgage, rent, and utility payments.
The SBA and the Treasury Department require that at least 75% of a loan be spent on payroll to qualify for forgiveness, which is not automatic as borrowers must request it through their lender and provide supporting documentation.
The Treasury's list of frequently asked questions, updated May 3, notes an intention "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.
Alternate Base Period
Treasury also issued an interim final rule April 27 allowing seasonal employers to use an alternate base period for calculating their eligible PPP loan amount.
Loan applicants that comply with applicable SBA requirements and Treasury's interim final rule on seasonal workers, are eligible for a PPP loan.
Under Treasury's rule, a seasonal employer can elect to use a 12-week period between May 1, 2019 and September 15, 2019 to calculate its maximum PPP loan amount.
Instead of following the instructions on page three of the Borrower Application Form for the time period for calculating average monthly payroll for seasonal businesses, an applicant may use the alternate time period.
For more information, contact CBIA's Brian Corvo (860.244.1169).