If you recently received a federal Paycheck Protection Program loan, you may be breathing a sigh of relief for your company’s financial health in these trying times. However, if you extend a rehire offer to one or more employees that were laid off or furloughed and they decline, matters become a bit more complicated.

In order to have your loan, which is designed to help cover (as of the PPP Flexibility Act) up to 24 weeks of payroll expenses and other related costs, forgiven, at least 60% of the funds you receive must be used to pay employees. In addition, if you have already had to lay off one or more of your employees, you’ll need to maintain your headcount by offering to rehire the individuals who were let go. Unfortunately, some of these workers may choose to decline your rehire offer if they feel they are in a better position on unemployment and CARES act assistance. If this occurs within your business, you have a few responsibilities that will need to be taken care of in order to avoid having your forgiveness amount reduced.

What You Can Do

If an ex-employee declines your rehire offer, you will need to document the rejection and report it to the state unemployment insurance office. Although this may cause tension between your HR department and laid off employees who are already struggling, following these steps is essential, as it should ensure that you are still able to receive the full forgiveness amount of your loan if you meet the following conditions:

  • Make a good-faith written offer to rehire employees who were laid off
  • Offer the employees in question the same wages and hours that they had prior to the layoffs
  • Have the offer rejected by the worker 
  • Keep detailed documentation of both the offer and the rejection response
  • Notify the state unemployment office of the rejection within 30 days of receipt

One of the most important takeaways we get from this list is the need for documentation. If you are used to calling, texting, or communicating with your employees in any other informal way, you will want to make sure you switch your method of contact to email or hard-copy letter in order to meet requirements. You will also need to make sure you receive the rejection notice from your ex-employee in one of these formats so that you are able to provide a copy to the government. While this may feel uncomfortable, not doing so may be risking your loan forgiveness. In the event that you are unable to meet the requirements listed above, you will have up to 5 years to pay back any unforgiven loan amount at an interest rate of 1%, so you should be sure to follow all the necessary steps to avoid being considered exempt from forgiveness.

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