The situation is increasingly common these days: an employer laid off or furloughed employees earlier in the COVID-19 pandemic, but then came the CARES Act and the employer was able to apply for and secure a Paycheck Protection Program (PPP) loan, which in turn enabled the employer to hire back some or all of the employees it laid off. But some employees don’t want to come back because they’re actually making more money from the unemployment compensation they’re receiving and/or they have lingering concerns about being exposed to the virus.

A reminder that PPP loan monies spent within 8 weeks to cover payroll costs, utility payments, rent payments, or mortgage interest are eligible for forgiveness (as long as 3/4 of the total forgiveness amount is spent on payroll costs) if the employer both: (a) continues to pay employees 75% of what it paid them in the most recent pre-pandemic quarter, and (b) maintains the same average number of employees as it did during the period from either January 1 to February 15 of this year, or February 15 to June 30 of 2019. If the employer failed to meet either or both of these requirements at any point during the period from February 15 to April 26 of this year (during the height of the pandemic), the PPP loan would still be eligible for forgiveness if the employer restores any decrease in pay and/or rehires employees before June 30.

So what does an employer do when employees’ refusals to return to work jeopardize the ability for the PPP loan to be forgiven because the employer can’t maintain the same average number of employees? Well, the SBA answered that question earlier this week in its PPP Frequently Asked Questions (FAQ #40).

The short answer is that an employer’s PPP loan forgiveness will not be affected if the employer previously laid off an employee and subsequently makes him/her a good faith written offer of reemployment (for the same compensation and number of hours as before), even if the employee rejects that offer, so long as the employer documents the employee’s rejection. (A reminder, as we told you in Monday’s newsletter, that employees who reject offers to return to work could disqualify themselves from continued unemployment benefits.) The SBA says that an interim rule is coming with more specifics, but for now the FAQ guidance will have to do.

By Rebecca D. Bullard, rbullard@dsda.com