Q: Like the majority of agency owners, I have received a Payroll Protection Program (PPP) loan under the Cares Act. I want to ensure that as much of the loan as possible gets forgiven and becomes, in effect, a grant. However, I know that I can't reduce my total payroll or employee head count without having to repay at least part of the loan. My problem is that some of my employees don't want to come back to work because they are getting much more money from unemployment, at least through July 31. For example, one laid-off employee is getting $1,104 per week in New York and one in California $1,050 per week. So will I have to repay what I would otherwise have paid them?
A: Under a new rule issued by the Treasury Department and the Small Business Administration (SBA) on May 22, you won't have to repay amounts that you would have paid to employees who don't agree to come back when you offer to rehire them, as long as you meet certain criteria. Further, if you reduced the hours of an employee and then offered to restore those hours but the employee declined, you won't have to repay the amount for the additional hours, either.
The Cares Act forgiveness formula compares the full-time-equivalent employee head count before the crisis with the current full-time-equivalent head count, and any reduction reduces the amount forgiven by the percentage reduction in head count. However, under the new rule, you don't have to reduce forgiveness for any employee who doesn't come back if you meet all of these five criteria:
- You made a good faith, written offer to rehire the employee (or, if applicable, restore the hours you reduced).
- Your offer was for the same salary or wages and same number of hours earned by the employee in the last pay period prior to the layoff or reduction in hours.
- The offer was rejected by the employee.
- You maintained records documenting the offer and its rejection.
- You informed the applicable state unemployment insurance office of the employee's rejected offer of reemployment within 30 days after the rejection.
The method by which you are supposed to inform your state's unemployment office is not specified, and the new rule states only that "further information will be provided on the SBA's website." What the state will do with your report, if anything, is also not specified.
So, theoretically, you could keep all of your PPP loan even if all your employees refuse to come back during the measuring period and you meet the other criteria, including spending no more than 25% of the loan on rent, utilities and mortgage interest. It seems odd that the government would thus be paying employees not to work, on the one hand, while simultaneously allowing employers to keep what their payroll would have been, on the other hand.
As of late May, it looks like Congress will extend the measuring period from eight to 24 weeks, which would be good news for all travel businesses.