New Guidance on Loan Forgiveness for the Paycheck Protection Program

On Friday, May 15, 2020 the Small Business Association (“SBA”) released loan forgiveness guidance and document requirements for businesses who received loans through the Paycheck Protection Program (“PPP”). To apply for forgiveness of a PPP loan, borrowers must complete the Loan Forgiveness Application and submit it to the Lender servicing the loan. Borrowers may also complete the application electronically through their Lender.

Click Here for the PPP Loan Forgiveness Application


 

Below are answers to some common questions related to forgiveness of loans received through the PPP:

 

MY BUSINESS RECEIVED A PPP LOAN. DO I HAVE TO RETURN ALL OF MY EMPLOYEES TO PAYROLL IN ORDER TO TAKE ADVANTAGE OF THE LAON FORGIVENESS OPTIONS?

  • In order to qualify for full loan forgiveness, companies are required to maintain the same number of full-time equivalent employees per month during the eight-week PPP period as compared to the average number of employees per month during the look-back period (which can be either February 15, 2019 to June 30, 2019 or January 1, 2020 to February 29, 2020, at the company’s choice).
  • Recent guidance from the SBA allows companies, as additional alternatives, to use the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application, or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months.
  • Employers should understand that it is the total headcount, not the specific employees, that companies should be mindful of. This means that companies do not need to rehire the same individuals in order to maintain eligibility for full loan forgiveness. Rather, they can satisfy the headcount requirement by hiring new employees.
  • Additionally, the recently released SBA PPP Loan Forgiveness Application allows employers to note employees who were terminated for cause, voluntarily resigned, or voluntarily reduced their hours when applying for loan forgiveness, if those positions were not filled. These employees will not count against loan forgiveness.
  • Employers should maintain written documentation of all separations and the circumstances of each.

 

WHAT IF I DON’T HAVE HOURS OR WORK FOR THE EMPLOYEES THAT I WANT TO MAINTAIN?

  • Companies that are returning employees to payroll for the PPP loan period but do not have hours or work for those employees, may pay employees to not work.
  • Companies also are allowed to reduce wages and salaries, and still qualify for loan forgiveness, so long as they do not reduce wages of employees earning under $100,000 annually by more than 25%.
  • Companies must continue to satisfy minimum wage and salary requirements.
  • Cuts to wages should be conducted in a consistent, non-discriminatory manner, and should be clearly communicated to employees.

 

WHAT HAPPENS IF MY EMPLOYEES REFUSE TO RETURN TO WORK?

For employers operating under a PPP loan and concerned about employee numbers for loan forgiveness, the SBA has issued guidance that laid-off employees who refuse to return to work after the employer offered to rehire them for the same wages and same number of hours, will not count against the employer for loan forgiveness purposes.

  • In this situation, employers should maintain documentation of their good-faith, written offer of reemployment and the employee’s rejection of that offer.
  • Under such circumstances, the company can permanently terminate the employee.

For various reasons, some employees may be hesitant to return to work. It is important to understand each employee’s concerns in order to address them appropriately.

If the employee’s refusal is related to compensation, because of increased unemployment benefits that may be available or because of reduced wages, employers can consider rolling furloughs or alternate week schedules.

  • New York and New Jersey both offer partial unemployment benefits, but those benefits have a limit on the amount an employee can earn or work during a week in order to qualify for benefits.
  • A rolling or intermittent furlough, such as a week-on/week-off schedule, could allow employees to claim benefits during their off weeks.
  • Employers and employees should keep in mind that if employees are offered work and do not return, this could result in employees’ being disqualified from unemployment benefits entirely.

Some employees may not want to return to work because they have underlying health conditions or because they are caring for individuals who are at an increased risk of complications from COVID-19. Employers should consider each such situation individually and determine whether there is an ADA accommodation that can be made or whether the employee may qualify for a paid or unpaid leave of absence under applicable laws.

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