Article written by:
Kristin Romaker, CPA
Manager, Assurance & Business Advisory Services
As regulators continue to evaluate the requirements for loan forgiveness of the Paycheck Protection Program (PPP), there have been some wins for restauranteurs. As the program initially stated, to obtain loan forgiveness, an employer needed to spend at least 75% on payroll related to eligible forgiveness expenses within the eight-week covered period, which starts on the loan disbursement date. As states begin to reopen from various COVID-19-related mandated shutdowns, restaurants are experiencing difficulty in getting furloughed or laid-off employees to return to work.
On May 5, 2020, the U.S. Department of Treasury (Treasury) provided updated information via their Frequent Asked Questions (FAQ) document to assist with restaurateurs’ concerns. As noted in FAQ #40 (see below), Treasury will not reduce a borrower’s forgiveness due to an unfilled position as a result of a former employee declining re-employment. However, restaurateurs must be prudent in obtaining written documentation of the rehire employment offer and document if the offer was declined. Treasury did note the employment offer must be for at least the same pay rate and hours as before COVID-related furlough.
- 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 rehires the same employee, but the employee declined the offer.
Answer: No. As an exercise of the Administrator’s and 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 who 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 to 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 to re-employment may forfeit eligibility for continued unemployment compensation.
We believe this new guidance results in the employee who declined a valid employment offer to be included in the full-time equivalent employee (FTEE) calculation based on the offer being made to the laid-off employee (which must be at least the same pay rate and hours before COVID-related lay off or furlough). For example, if an employee typically worked 25 hours prior to being laid off and was offered the same hours and wage, that employee counted as an FTEE of 0.83 (25 divided by 30 hours). This could significantly assist restauranteurs to boost their FTEE number and reduce the employee reduction penalty used in the forgiveness formula.
Treasury further noted employers should note employees risk losing eligibility for unemployment compensation if they decline the offer. Employers should also report declines in employment offers to state unemployment agencies. Employees are declining to return to work as many are making more money with state and federal unemployment benefits. The risk of potentially losing unemployment may incentivize workers to return to their previous jobs as states begin to re-open the economy.
To discuss this information in more detail, please contact a member of GBQ’s Restaurant Services team.