A new regulatory exemption has been created regarding the loan forgiveness rules under the Paycheck Protection Program (PPP) for borrowers who have offered to rehire or restore employees to their prior working hours, even if the employees do not accept the offer. This exemption is reflected in the new “Interim Final Rule regarding Requirements for Loan Forgiveness” issued by the Small Business Administration (SBA) and Department of the Treasury, effective May 28, 2020.
Under the CARES Act, a borrower who has taken out a PPP loan is eligible for loan forgiveness for costs relating to specified payroll and non-payroll expenses incurred during the applicable covered period. However, under Section 1106, the loan forgiveness amount is reduced to take into account reductions in the number of employees and reductions in employee salary and wages during the covered period, unless the borrower has rehired employees and restored salary and wage levels by June 30, 2020.
Under the new exemption, an employer’s PPP loan forgiveness amount will not be reduced if the affected employee declines the employer’s offer to be rehired or restored to the same number of hours. To claim this exemption, an employer must take the following steps during the applicable covered period:
- Make a good faith written offer to rehire the employee or restore the reduced hours, as applicable, at the same salary or wages earned, and same number of hours worked, by the employee in the last pay period prior to the separation or reduction in hours;
- Demonstrate that the offer was rejected by the employee;
- Maintain records documenting the offer and its rejection; and
- Inform the applicable state unemployment insurance office of the employee’s rejected offer of reemployment within 30 days of the rejection (with the SBA to provide additional information on its website as to how that information will be reported to state unemployment insurance offices).
Employers should carefully document offers of rehire/restoration of prior compensation and hours, and rejections thereof, and ensure that they timely report rejected offers to the state unemployment insurance office in order to avail themselves of this new exemption.
Employers also should stay up-to-date on the continually changing law with respect to the PPP. For instance, the newly passed Paycheck Protection Program Flexibility Act extends the applicable covered period and expands loan forgiveness for businesses unable to rehire workers who were employed as of Feb. 15, 2020, or find similarly qualified workers to fill positions. It is unclear at present how this will integrate with previously issued SBA and Department of the Treasury guidance, including this exemption. Stay tuned, there will doubtless be many additional changes in the near future.
Information is changing daily and some of the content included in this alert may have changed or been updated since publication.
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