Employers that have been receiving loans under the Paycheck Protection Program from the CARES Act have a lot to think about to make sure that the loan is forgiven.

One key aspect is that the borrower/employer must spend 75 percent of the loan proceeds on payroll.

That becomes challenging when employees have been furloughed or laid-off.

And more specifically, I’ve been hearing the question of what happens when employees say that they don’t want to return for now (perhaps because of safety concerns or they are making more on unemployment).

The Treasury Department and Small Business Administration have answered that question in an update to the FAQ on Sunday, May 3, 2020.

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.

What’s this mean for employers? Make sure to document any rejections of offers of employment.  Some employers may want to go one step further and do additional hiring (where needed) to make sure that the new people might “replace” those people who refuse to return.

But bottom line: This is good news and gives employers some additional leeway to get the loans forgiven.  Regardless, documentation and caution remain critical.

For more information, my firm has a PPP loan working group to answer any remaining questions. Feel free to follow the Coronavirus Resource page here.