The IFR notes that this rule technically could be applied to terminations that occurred prior to February 15, 2020, but they indicate that the risk of abuse is de minimis. The borrower pays its May and June electricity bill during the covered period and pays its July electricity bill on August 10, which is the next regular billing date.
- The answer is no — but the employer will have to document the offer and the rejection, and then report the employee to the state unemployment office.
- You can rehire any staff that were laid off or put on furlough and reinstate any pay that was decreased by more than 25% to meet the requirements for forgiveness.
- Unique Employment Services does not control such websites and is not responsible for their content.
- The alternative payroll covered period may only be used by borrowers who pay on a bi-weekly or more frequent basis.
The hiring levels also reflect the realities of hiring or rehiring during a pandemic situation where many previous FTEs may elect to care for family members or observe quarantine protocols. O Pursuant to the Exemption section (p. 49), the SBA Administrator and the Treasury Secretary may prescribe regulations granting de minimis exemptions from the requirements under this subsection. This provision offers the SBA and Treasury expansive authority on the forgiveness parameters, which must be illustrated clearly for potential borrowers. The borrower made a good-faith, written offer to rehire such employee during the covered period or the alternative payroll covered period. For example, if you received your PPP loan proceeds on Monday, July 6, 2020, then that would be the first day of your 24-week period. Therefore, you would still be eligible for loan forgiveness for amounts paid for certain eligible uses between July 6 and December 20, even in the unlikely event you remained closed until a later date.
They show that you could possibly make a case that you were unable to operate at the pre-Covid level because of guidance issued by the CDC in regards to your clients; i.e., «Do not travel» and «Avoid cruise ship travel.» If you are rehiring someone that worked for you before you are in a Ppp Rules On Rehiring Employees good position to meet the deadline of June 30. Especially for management positions, executive recruiting has often proven to be a 4-8-month process. A survey among 685 NFIB members conducted May 18 found that 80 percent had applied for a PPP loan, and almost 90 percent received the loan.
RELIEF PROGRAMS FOR EMPLOYEES AFFECTED BY COVID-19 OR SHELTER IN PLACE
This reduction calculation is performed on a per employee basis, not in the aggregate. Additionally, this reduction is performed based on the Covered Period and reference period applicable to the First Draw Loan or Second Draw Loan. The requirement that the employer/borrower inform the applicable state unemployment insurance office of the rejected offer of reemployment within 30 days of the employee’s rejection is particularly noteworthy and important. In some instances, employers have been choosing not to inform the state unemployment insurance office of a rejected offer of reemployment. An employer will have to do so if it wants to maximize PPP loan forgiveness, and maintain documentation of the same. However, due to enhanced unemployment benefits authorized by the CARES Act through July 31, 2020, concerns about COVID exposure, and other considerations, many furloughed employees are now refusing offers to be rehired or restored to their previous positions or salaries. These refusals present a quandary for employers who are specifically required to use a certain amount of their PPP funds for payroll in order to avoid taking an across-the-board haircut on their prospective loan forgiveness.
Employers are urged to discuss this with employees so they fully understand the risks of refusing reemployment. Find answers to some frequently asked questions by employers around the Paycheck Protection Program and employees collecting unemployment. As well, we must also wait to see if the SBA will still limit forgiveness to the amounts expended, so that the borrower may need to return the funds it was unable to pay. As for terminations, employers should always document the reason for an employee termination, but the PPP’s differential treatment of lay-offs and “for cause” terminations heightens this need. Employers should not stretch to label a termination “for cause” in order to maximize PPP loan forgiveness, and you should have an objective basis to support your “for cause” determination.
Where to find August’s flipbook issue
The Covered Periods for a First Draw PPP Loan and a Second Draw PPP Loan cannot overlap; the borrower must use all proceeds for the First Draw PPP Loan for eligible expenses before disbursement of the Second Draw PPP Loan. Second, the employers were fortunate enough to obtain a loan under the Paycheck Protection Program , which in turn allowed the employers to offer jobs back to their laid-off employees. But then, employees refused to return to work, citing among other reasons the fact that with state unemployment benefits and the additional $600 per week they are receiving under the CARES Act, they are actually making more money on unemployment than when they were working. It seems likely the borrower will still need to pay back funds if the employer is unable to expend sufficient funds in the 8 week period. For many small businesses, handling the complications of managing PPP expenditures can be a major hurdle, especially in the wake of Covid-19.
A business may not apply for more than one PPP loan but may apply for other SBA assistance, including EIDLS, SBA 7 loans, SBA 504 loans and microloans, and also receive investment capital from a small business investment company. Certification from a representative of the business or organization authorized to certify that the documentation provided is true and that the amount being forgiven was used in accordance with the program’s guidelines for use. Employees may qualify for partial UI benefits depending on total income received in a given week. We encourage you to visit Schwabe’sCOVID-19,CARES Act, andPPP Portal resource pages frequently for information. Benton Toups is Chair of the Employment Law Practice Group at Cranfill Sumner. He has represented employers before the Equal Employment Opportunity Commission, the Department of Labor, the North Carolina Industrial Commission, and several state and federal courts.
To that end, offers of rehire should be sent via email or written letter — and employers should tell employees that they’re expecting a response in writing, said Gorman. Under the PPP, borrowers who have had to lay off workers or cut hours won’t have a reduced amount of forgiveness if they rehire the employees or restore their hours by June 30. «It puts pressure on the small businesses and it could cause some HR issues, as well as concerns with employees feeling betrayed by their employer — they were reported to unemployment when they’re struggling,» he said. The answer is no — but the employer will have to document the offer and the rejection, and then report the employee to the state unemployment office. The Paycheck Protection Program is a federal loan program that was established by the CARES Act.
Paycheck Protection Program: What to Do if Your Rehire Offer Is Rejected
Employers should consider notifying employees of that possibility while informing them that the state, not the employer, determines an employee’s eligibility. The key points to note are the requirement for the employer to issue a written offer to rehire the employee and that the employer must document the rejection of the offer. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation. The PPP Loan Forgiveness Application and IFR clarify that FTE employee reductions caused by terminating employees for cause do not reduce the borrower’s loan forgiveness. However, no guidance has been issued on the definition of “for cause,” and there is not a universally accepted definition of “cause” in employment law.
Now, employers will not be penalized with reduced PPP loan forgiveness if a worker rejects an offer to return to their job—a significant concern for operators given the reality many employees are making far more money on unemployment. The SBA’s website will provide further information on how borrowers will report rejected rehire offers to state unemployment insurance offices.
- By April 16, the SBA had stopped accepting applications for the PPP after exhausting the initial $349 billion in funding.
- «Congress and the administration have the authority to further lighten the burden for many of their immediate concerns, especially in offering more flexibility for PPP loans.»
- The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional.
- It seems likely the borrower will still need to pay back funds if the employer is unable to expend sufficient funds in the 8 week period.
Moreover, the application and instructions, and Interim Final Rule, take a common-sense, reasonable approach to FTE employee reductions that further the goals of the PPP. The IFR requires borrowers using the de minimis exemption to maintain records “demonstrating that each such employee was fired for cause, voluntarily resigned, or voluntarily requested a schedule reduction” and must have this documentation available upon request. «Say you have two employees working for you, but your main mode of communications might be via text,» she said. «A lot of small businesses are more casual with employees, and now we are asking them to be formal.» Second, they must offer the same salary or wages and the same number of hours prior to laying that worker off. Although the law may have been intended to focus on safety requirements inside your business, such as social distancing, it ought to be interpreted as I have explained. I have learned that ASTA agrees and is trying to get written confirmation from the government.
EDD – Unemployment Insurance
Allowing companies that document their inability to rehire workers employed as of February 15, 2020 as well as their inability to find similarly qualified workers by the end of the year to remain qualified for loan forgiveness. The borrower can also claim a safe harbor from rehiring employees if the borrower is able to document that it was unable to operate at the same level of business activity during the Covered Period as before February 15, 2020 due to compliance with COVID-19 safety requirements. The National Restaurant Association has continued to urge officials to adjust guidance on Paycheck Payment Program loan forgiveness provisions. Please check this website frequently to ensure you have the most up-to-date guidelines as issued by the SBA on allowable uses of PPP loan proceeds and loan forgiveness. “Full-Time Equivalent Employee” means an employee who works 40 hours or more, on average, each week.
If the borrower has already submitted a forgiveness application to the lender, the borrower should not submit a duplicate forgiveness application though the SBA Platform. If the borrower does not apply for loan forgiveness within 10 months after the last day of the maximum Covered Period of 24 weeks, or if the SBA determines that the loan is not eligible for forgiveness , the PPP loan is no longer deferred and the borrower must begin paying principal and interest. If this occurs, the lender must notify the borrower of the date the first payment is due. The covered period is the period beginning on the date the lender disburses the PPP loan and ending on the date selected by the borrower that is at least 8 weeks following the date of loan disbursement and not more than 24 weeks after the date of loan disbursement (the “Covered Period”). Please note that the option to elect an alternative covered period was removed because the Economic Aid Act provided borrowers flexibility to choose the end of their Covered Period.
Paycheck Protection Program
Department of Treasury updated their FAQs (see question #40 available here) to address this very question. This alert summarizes the recent SBA guidance and offers practical advice to address the dilemma posed by employees refusing to return to work because they are collecting more in unemployment benefits. Allowing borrowers to defer principal and interest payments on PPP loans until the SBA compensates lenders for any forgiven amounts, instead of the current six-month deferral period.
Yes, the forgiveness calculation cannot exceed an annualized salary of $100,000. So if you are paying an employee an annualized salary of more than $100k, you can only be forgiven for a pro-rated $100k.
If by December 31, you only hire back some but not all of your employees using PPP funds, you won’t be able to have your full PPP loan amount forgiven. The forgivable amount will decrease in proportion to the ratio between your headcount, or full-time equivalents , during the forgivable period and your pre-pandemic FTE. If you reinstate your FTE count by December 31, you qualify for full forgiveness on your payroll costs. A business affected by the coronavirus pandemic and is classified as a “small business” as defined by the SBA.
If you had previously laid off your employees, you can go ahead and rehire them using PPP funds. That’s easier said than done, since lots of businesses have complicated employee situations. Here are some of the most common questions we’ve heard around PPP and employee rehiring.
PPP Loan Forgiveness: The Basics
The National Law Review is not a law firm nor is intended to be a referral service for attorneys and/or other professionals. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional. NLR does not answer legal questions nor will we refer you to an attorney or other professional if you request such information from us. Is a Long Island law firm providing a wide array of legal https://quickbooks-payroll.org/ services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions. Because the issues surrounding PPP loan forgiveness will loom large in the coming months, it is anticipated that additional guidance from the SBA will be forthcoming on this and other outstanding issues.
For more details on the requirements for loan forgiveness, see the SBA’s loan forgiveness application and instructions. In its most recent addition to the questions and answers for the Payroll Protection Program loans, the SBA has given some protection on forgiveness for an employer that attempts to rehire an employee if the employee declines the offer of employment. The IFR notes that additional information on how borrowers are to report the information on rejected rehires to their state unemployment insurance offices will be available on the SBA’s website. California, like other jurisdictions, traditionally disqualifies employees from receiving unemployment benefits if they refuse work without good cause. However, the number of unemployment claims and filings caused by the COVID-19 pandemic makes the traditional processes used by states to police against such actions impractical, if not impossible.
This quandary arises because another provision of the CARES Act essentially runs at odds with the PPP’s loan forgiveness incentives. Some employers are finding it difficult to get hourly employees to return to work following furloughs and layoffs because, depending on the circumstances, employees can make more by staying home.
The CARES Act includes a $600-a-week bonus until July 31 for those registered as unemployed. The maximum unemployment benefit in NY is $504, so certain individuals may be receiving up to $1,104 per week in benefits—which would amount to $27.60 per hour. As a result, some laid off employees are rejecting offers of re-hire and businesses are concerned about how this trend will impact their ability to comply with PPP loan forgiveness requirements. The PPP Loan Forgiveness application and instructions issued on May 15, 2020, and the Interim Final Rule clarify that FTE employee reductions caused by voluntary employee resignation do not reduce the borrower’s loan forgiveness. The IFR defines a “full-time equivalent employee” as an employee who works 40 hours or more, on average, each week, and employees who work less than 40 hours are calculated as proportions of a single FTE employee and aggregated.
Employers should be carefully documenting each unpaid leave of absence or furlough, and each employment separation—especially where the leave or separation is employee-initiated. Employers should have employees confirm in writing a request for a leave of absence, a resignation or a refusal to return to work when an offer has been made. If an employee is not cooperative in providing this written confirmation, the employer should nevertheless document its conversations with the employee. Just as employers are expected to document the way they use PPP funding, they’re also required to maintain detailed records on the rehiring-rejection process. Congress established the PPP through the CARES Act, which was signed into law on March 27.
If your PPP funds run out and your business has a poor financial situation after the 24-week period, then you are allowed to lay off employees. If you do choose to lay off employees, however, it is important to remember to wait until after the 24-week period has ended, otherwise, you may reduce the potential maximum amount of loan forgiveness you qualify for. Eligible borrowers that received their loans on or before Thursday, June 4 may elect to retain the 8-week covered period.
Form 3508EZ is limited to these specific instances and all other borrowers must complete the regular form. If you have any questions about this post or any other related matters, please feel free to contact me at -law.com. For more information related to COVID-19, visit ourCoronavirus Thought Leadership Connection. A minimum of 60%, spending less than 60% on payroll could diminish the amount of forgiveness you can receive. While the SBA PPP Loan Forgiveness Guidance continues to be clarified as a result of the passing of the Flexibility Act, here’s what we’ve understood so far.