The SBA has issued new guidance (FAQ #40) that Taxpayers who apply for loan forgiveness will not be required to reduce laid-off workers from the forgiveness calculation if the employer made a good faith written offer to rehire the employee(s) for the same salary/wages and the same number of hours.  This should be welcome news as the decision to accept on offer to rehire is not under the control of the employer.

The SBA issued this guidance under its authority of Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exceptions from the Act’s limits on loan forgiveness.  The SBA and the Treasury have indicated that the final rule will include that 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. 

The math can get complicated and the borrower should seek professional assistance with an advisor experienced with the PPP Loan Program.  However, the benefit of the SBA’s latest FAQ is that the borrower will not be penalized if the computed full time equivalents (FTEs) are lower than the base number as a result of former employee(s) not accepting the borrower’s offer to be rehired.  

Importantly, employees and employers should be aware that employees who reject an offer of re-employment may forfeit eligibility for continued unemployment compensation.

We will continue to provide regular client updates on future SBA and IRS guidance as the government continues to offer various interpretations of the PPP loan program implementation.  One thing that is clear, good recordkeeping, including written communication to laid-off employees being offered to be rehired will be critical for maximizing any loan forgiveness and avoiding IRS penalties.

Please contact Bob Cohen at should you have any questions relating to PPP Loans and the new IRS rules.

© 2020. This publication is intended for general informational purposes only and does not, nor is it intended to, provide the reader with legal advice of any kind. This publication does not, nor is it intended to, create any attorney-client relationship. Readers should consult with their own attorney to discuss the legal implications of any content in this publication to their particular situation.