SBA PPP Loan Forgiveness Frequently Asked Questions FAQ

As a matter of best practices, employers should additionally document the transmission of all offers of rehire , as well as the responses of employees to the extent they are in writing. Also, as noted by the SBA, employers and particularly employees should be aware that a refusal to accept rehire by a former employee could very well render the refusing employee ineligible to continue receiving unemployment benefits.

• Instead, the amount of loan forgiveness depends, in part, on the total amount of loan proceeds spent on certain eligible uses during an 24-week period .
• If the borrower has already submitted a forgiveness application to the lender, the borrower should not submit a duplicate forgiveness application though the SBA Platform.
• Borrowers that don’t apply for forgiveness would be given at least 10 months after the program expires to start making payments.
• This program is incredibly complex, and was developed under significant pressure.
• This provision offers the SBA and Treasury expansive authority on the forgiveness parameters, which must be illustrated clearly for potential borrowers.
• Congress established the PPP through the CARES Act, which was signed into law on March 27.

Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein. Let’s say you have three full-time employees and they each made $3,000 per month, meaning your PPP loan amount was $22,500 (3000 x 3 x 2.5).

Bringing Employees Back – Job Offers to Maximize PPP Loan Forgiveness

The FAQ simply states that employees and employers should “be aware” that a rejection may impact the employee’s eligibility for unemployment benefits. Under the CARES Act, the amount of PPP forgiveness may be reduced if the borrower reduces its workforce or salary levels during the first eight weeks of the loan . A reduction in loan forgiveness based upon employee headcount occurs if a borrower’s average number of full-time-equivalent employees during the https://quickbooks-payroll.org/ Covered Period is less than the average number of FTE employees during the period of February 15, 2019 to June 30, 2019, or January 1, 2020 to February 29, 2020. However, a statutory exemption is provided for borrowers who rehire employees by June 30, 2020. Thus, borrowers seeking to maximize loan forgiveness have an incentive to rehire employees after obtaining a PPP loan. The borrower’s eight-week covered period begins on June 1 and ends on July 26.

Employers with operations and employees in other states should consult that state’s unemployment compensation commission or department for forms and guidance. A reduction in the number of employees or in wages/salaries can be cured and won’t reduce the amount of loan forgiveness if, by June 30, 2020, the borrower eliminates the reduction in employees or the reduction in wages.

SBA PPP Loan Forgiveness FAQs

Fortunately, the SBA has specifically addressed this issue in its updated FAQ. To summarize, employers can avoid the penalties resulting from employees’ refusal to be rehired by meeting two requirements. Second, in the event the employee declines to be rehired, the employer must document the employee’s refusal to be rehired. Employers that do so in good faith will be allowed to exclude those employees when calculating whether they have maintained adequate staffing to avoid loan forgiveness penalties. A link to the most recent FAQ may be found here, and this issue is addressed in Question # 40.

• The Paycheck Protection Program is a federal loan program that was established by the CARES Act.
• The FAQ also indicates that the offer should be “for the same salary/wages and same number of hours” that the employee worked before the lay-off.
• KSM is here to answer your questions, assist with the calculation of eligible expenses for loan forgiveness, and help prepare the necessary documentation to support your loan forgiveness application.
• Each of those questions raises different legal issues where a business may need to seek further guidance from an employment lawyer.

The rule specifies that a borrower may exclude an employee from its loan forgiveness calculations if the borrower made a good-faith, written offer of rehire and also documented the employee’s rejection of that offer. Theinterim final rules , released May 22, 2020, includes a requirement for borrowers to notify the state unemployment office of an employee’s rejected offer within 30 days of that rejection. According to FAQ No. 40, the “SBA and Treasury intend to issue an Ppp Rules On Rehiring Employees interim final rule excluding laid-off employees whom the offered to rehire” but that refused to return to work from the PPP loan forgiveness calculation. The FAQ specifies that the employer must make a “good-faith, written offer” to rehire the employee, and must specifically document the employee’s rejection of that offer. The FAQ also indicates that the offer should be “for the same salary/wages and same number of hours” that the employee worked before the lay-off.

“The rule provides that employers will not get penalized if they offer to rehire their workforce and the employees refuse.” On May 3, 2020, the SBA and the US Department of the Treasury released new guidance to assist businesses with calculating the forgiveness amount for Paycheck Protection Program loans, with respect to employees who reject an offer to be rehired by a PPP borrower.

RELIEF PROGRAMS FOR EMPLOYEES AFFECTED BY COVID-19 OR SHELTER IN PLACE

The documentation provision is a key step that some small businesses may not be used to. Yes, the PPP funds are meant to encourage you, the employer, to rehire any staff that you may have had to lay off due to the initial impacts of COVID-19. If you’re applying for the Paycheck Protection Program—and you want to have your loan forgiven—you will need to maintain your previous employee headcount and salary levels. $4.2 million Settlement Settlement reached with City of San Francisco for teen walking in crosswalk who suffered permanent brain injury after being struck by vehicle. City officials were informed intersection was dangerous and failed to make it safer. $61 million Verdict Two Lebanese-American employees subjected to outrageous racial and ethnic discrimination and harassment. The information contained in this post may not reflect the most current developments, as the subject matter is extremely fluid and constantly changing.

For owner-employees, self-employed individuals, and general partners 24-week compensation is capped at the lower of $20,833 or the 2.5-month equivalent of their applicable compensation in 2019 for the 24-week period. For the 8-week Covered Period, this amount is capped at 8/52 of compensation up to $15,385.

PPP Loan Forgiveness Issues: When Employees Refuse to be Rehired

The first day of the borrower’s first payroll cycle that starts in the covered period is June 7. The borrower may elect an alternative payroll covered period for payroll cost purposes that starts on June 7 and ends 55 days later on Aug. 1. Payroll costs paid during this alternative payroll covered period are eligible for forgiveness. In addition, payroll costs incurred during this alternative payroll covered period are eligible for forgiveness as long as they are paid on or before the first regular payroll date occurring after Aug. 1.

• Offer the same salary, wages and number of hours the employee had prior to layoff or furlough.
• “The refusal does not need to be in writing but should be documented and kept in the employer’s PPP loan forgiveness file,” he said.
• The SBA has finally clarified that bonuses paid to employees, including hazard pay and commissions, are eligible for forgiveness.
• As an employer cannot force an employee to return to work or accept their salary, employers have been left to wonder what might happen in the event a sizable portion of their workforce would simply prefer to remain unemployed and collect enhanced unemployment benefits .
• Moreover, the application and instructions, and Interim Final Rule, take a common-sense, reasonable approach to FTE employee reductions that further the goals of the PPP.

The guidance comes in response to a growing concern that employees who have been furloughed or laid off as a result of the COVID-19 pandemic will decline offers of reemployment due to the fact that unemployment benefits may meet or exceed their regular wages. Under the CARES Act, employees who qualify for full or partial unemployment benefits will automatically be eligible for Federal Pandemic Unemployment Compensation , a $600 supplement that will be available through July 31, 2020. Because the average weekly unemployment benefit maximum in most states is around $300, the additional FPUC benefit would entitle many workers to benefits that may total more than $900 per week. As such, the guidance is intended to provide assurance to PPP borrowers who may have difficulty satisfying the employee retention requirements necessary to obtain full forgiveness of the PPP loan. The Small Business Administration recently issued new guidance regarding the Payment Protection Program , established to offset the economic effects of the coronavirus pandemic. This new guidance from the SBA concerns employees who refuse to return to work after a business reopens. By way of background, it has been widely reported that certain employees believe they are better off collecting unemployment than returning to a job that pays close to minimum wage.

My business just uses contractors. Can I hire them onto payroll and pay them with PPP funds?

Schedule C or F filers are capped by the prorated amount of their owner compensation replacement or proprietor expenses . For self-employed borrowers with no employees that file Form 1040, Schedule C, who used gross income to calculate the loan amount, proprietor expenses equal gross income. For self-employed borrowers with employees that file Form 1040, Schedule C, who used gross income to calculate the loan amount, proprietor expenses equal the difference between gross income and employee payroll costs. For self-employed borrowers that file Form 1040, Schedule F and have no employees, gross income may be used instead of net profit. For self-employed borrowers that file Schedule F and have employees, the difference between gross income and employee payroll costs may be used instead of net profit. For self-employed individuals that file Form 1040, Schedule F and have employees, the difference between gross income and employee payroll costs may be used.

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. Typically, employees are ineligible to receive unemployment benefits if they voluntarily separate from an employer or if the employer has work available for them to perform. However, the CARES Act dramatically expanded the circumstances in which an individual may be eligible for unemployment compensation if they are unable or even unwilling to work due to certain COVID-19-related reasons. For example, the CARES Act expands unemployment eligibility to employees who must quit their job as a direct result of the COVID-19 public health emergency. However, it remains unclear how state unemployment agencies will apply these eligibility criteria and distinguish between employees who may quit their jobs simply to access higher benefits.

As Close As Possible, Every Single Time.

As employers across the country prepare to gradually return employees to work, those who have taken PPP loans under the CARES Act also face an eight-week deadline to use the full amount of the PPP proceeds in order to obtain full loan forgiveness. At the intersection of the two issues are concerns from employers about how employment decisions will affect the company’s PPP loan forgiveness. Department of Treasury provided updated information via their Frequent Asked Questions document to assist with restaurateurs’ concerns. As noted in FAQ #40 , Treasury will not reduce a borrower’s forgiveness due to an unfilled position as a result of a former employee declining re-employment.

Furthermore, some employees may not even want to return—and not necessarily for coronavirus concerns. Some employees might be making more with unemployment benefits and don’t want to lose them by returning to work. While the SBA has not yet finalized their rules and many questions remain unanswered, this is good news for those employers who were lucky enough to obtain their PPP loan, but who have had laid off or furloughed employees refuse to return to work. Once the application is complete, the lender has 60 days to issue a decision to the SBA regarding what amounts are forgivable.” he lender must request payment from SBA at the time the lender issues its decision to SBA. SBA will, subject to any SBA review of the loan or loan application, remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, not later than 90 days after the lender issues its decision to SBA.

One approach is to caution the individual that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation—a point emphasized in the SBA guidance. You can explain that refusing to return to work without a legitimate justification will likely cause the employee to become ineligible for continued unemployment benefits, and that you will need to report this refusal to the state department of labor. You can also inform the individual that with unemployment at record-high numbers, there are plenty of people waiting to fill their jobs, and there is no guarantee a job will be waiting for them when the CARES Act’s $600 expires at the end of July. All borrowers that received First Draw PPP Loans before December 27, 2020 are required to submit the form. The purpose of the form is to require borrowers that received First Draw PPP Loans before December 27, 2020 to disclose whether a “Covered Individual” directly or indirectly held a “Controlling Interest” in the borrower at the time the borrower’s loan application was submitted to the PPP lenders. If the borrower submitted a loan forgiveness application to its PPP lender before December 27, 2020, then the form must be completed and submitted to the PPP lender not later than January 26, 2021.

If you read more it is easier to understand extending the period where a loan could be forgiven from December 31, 2020 from the current June 30, 2020 if businesses restore staffing or salary levels that were previously reduced. The provision would apply to worker and wage reductions made from February 15 through the end of April. For businesses that have been approved for the SBA PPP Loan and are interested in learning more about SBA PPP Loan Forgiveness, please visit the SBA PPP program guidance resource page often. If you have questions specific to your individual financial situation, please consult with your tax advisor, accountant and any other professional advisors.

Attorney General’s Insurance and Financial Services Division

As long as businesses “make a good faith” effort to rehire employees—and explain that they may lose their unemployment eligibility by not returning—the businesses would not face a penalty under that portion of the loan. An employer should find out why an employee may be reluctant to return to work and try to address that concern. Is the employee reluctant to return to the workplace due to particular vulnerabilities or an underlying medical condition? Each of those questions raises different legal issues where a business may need to seek further guidance from an employment lawyer. The borrower may still count employees that refused to return to work after an offer to rehire, but the borrower must now also document an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.

Retirement and health insurance contributions are not included (as those expenses are paid out of their net self-employment income). Owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf. In late March, the Association outlined this guidance for potential reduction of loan forgiveness. So there are a lot of moving parts, but Monday’s change is still a positive step. Based on the language used FAQ #40, the SBA appears to be on the verge of releasing its guidance on forgiveness of PPP loans. Until the SBA provides this guidance, however, borrowers and lenders must proceed with caution.

Once my PPP funds run out, can I make layoffs again?

Paycheck Protection Program loans or PPP loans are loans created in response to the COVID-19 virus that incentivize small businesses to keep their workers on the payroll. These loans will be forgiven if the small business can demonstrate that the loan was used to pay for payroll, rent, or utilities for a period of eight weeks. In this article, we cover the basics of what you need to know about PPP loans. Laid-off employees who reject an offer of rehire may wind up being reported to the state unemployment office if their company took a forgivable federal loan. SBA lenders were flooded with PPP applications from businesses in need of resources to help their businesses as the coronavirus pandemic and the consequences from social-distancing requirements devastated the economy. By April 16, the SBA had stopped accepting applications for the PPP after exhausting the initial $349 billion in funding. Two weeks ago, Congress approved an additional $370 billion in funding for small businesses, with $310 billion in fresh funds provided for the PPP.

Upon issuance of the lender’s forgiveness decision, SBA has 90 days, subject to any review of the loan or loan application, to make a forgiveness remittance to the lender, if appropriate. By submitting the forgiveness application through the SBA Platform , the borrower is authorizing SBA to share all information and documentation the borrower has submitted with the lender.