PPP Forgiveness: What To Do If Employees Won’t Return

US small businesses and their personnel are in a really tough spot at this time. Although some companies are legally permitted to reopen, actually doing so presents a challenge for myriad reasons. Not only is customer behavior uncertain right now, as COVID-19 remains a continuing threat to communities’ health and safety, but workers are also feeling uncertain about going back to work. Complicating the situation even more, businesses who recently received a Paycheck Protection Program (PPP) loan are actually calling workers back. These firms are required to spend the government loan proceeds on payroll to ensure that the borrowed funds to become forgiven—but in certain cases, the workers don't want to return, actually because they're making more cash on unemployment benefits.

In this article, I’ll offer top tips to business people in this unprecedented situation. I’ll go over the rules associated with PPP loan forgiveness and payroll, in addition to give you actionable suggestions about the best way to still be eligible for a PPP forgiveness even when the employees won’t return to work.

Why Employees Don’t Wish to Come Back

As you are surely knowledgeable, there are two major causes employees don’t want to go back to work at this time:

The employee is afraid to risk their own health (or a household member’s health) by going back to work.
The employee is generating cash on unemployment compared to what they would working at the business.

These two factors will be to some degree, related. For instance, some employees may be willing to undertake some extent of risk and return to work, only if they've sufficient financial motivation to do this. But if they're making more money on unemployment than they would when they returned to operate, then they would probably prefer to stay home.

Other workers may not be particularly concerned about their health but nonetheless prefer to stay home for financial reasons. The CARES Act includes a $600-a-week supplemental payment in federal Pandemic Unemployment Compensation, along with each individual state’s unemployment benefits. For a lot of lower-wage workers, a $600/week pay raise is just too best to turn down.

Still anybody else might be solely motivated by health considerations, and unwilling to come back to your working environment at any price. These individuals are probably searching for a work-from-home job or perhaps a job inside a different industry that doesn’t pose as great of a health risks.

Overall, most employees are probably somewhere in the middle—worried about their own health at work, but likely taking monetary considerations into consideration as well.

Can Employees Refuse Rehire & Still Collect Unemployment?

Can employees legally refuse to go back to work and still collect unemployment benefits? The short answer is no, they can’t. When folks file biweekly unemployment claims, the federal government asks these to verify that they have not received a job offer. If they have received an offer, they can no longer receive benefits. State unemployment agencies also routinely get in touch with employers to verify the status of workers receiving benefits; if an employer states that somebody has been offered a job and that person is still collecting unemployment, their state will investigate it.

Going one step further, some states will also be advising employers to actively report COVID-19 return-to-work refusals to the state’s department at work. For instance, Vermont and Ohio have online forms where employers can report this kind of “COVID-19 Fraud.”

Of course, this whole situation puts you inside a tough spot like a small business owner. You might not want to stop someone’s unemployment benefits or perhaps have them in trouble, especially if you are sympathetic with the explanations why they don’t want to return to work. However, to meet up with the relation to loan forgiveness underneath the PPP, you'll indeed have to document an employee’s refusal to return to work (more about PPP as it relates to your employees inside a bit).

Exemptions To Return-To-Work Requests

Employers should also be aware that there are certain exceptions for return-to-work requests, wherein furloughed employees may still be eligible for unemployment benefits even when they're ordered revisit work.

Employees who're not able to go back to work since they're ill with COVID-19 or caring for a relative with COVID-19 may still be eligible for unemployment benefits. The same goes for employees who are taking care of children at home because of COVID-related school closures, individuals with compromised immunity which makes them more vulnerable to COVID-19, and employees who face a high risk of exposure at their place of employment that the employer cannot address (for instance, by giving employees with adequate personal protective gear).

In some cases, the employee may be eligible paid or unpaid leave, which you might have the ability to use your PPP to cover (even if they take unpaid leave you might still still pay their health insurance, for instance), because this employee leave benefits are included under the umbrella of payroll expenses. However, the CARES Act expressly excludes while using PPP to cover expanded COVID-19-related sick and family leave wages, for which a separate business tax credit is allowed—the Families First Coronavirus Response Act Paid Sick Leave Refundable Credit.

Finally, if a return-to-work offers are at reduced pay or reduced hours, the worker may still be eligible for full or partial unemployment benefits. You should also observe that your PPP loan forgiveness will be reduced if you decrease salaries and wages by a lot more than 25% per employee.

Considering all the complex implications and connection between calling your employees back to work throughout the coronavirus pandemic, it’s crucial that you like a business owner familiarize yourself with all federal and state laws regarding calling your furloughed employees to work.

PPP Employee Payroll Forgiveness Rules

The PPP has certain rules about what you need to do in terms of the payroll area of the loan in order to be eligible for a loan forgiveness. Note that it is still easy to qualify for full forgiveness in your loan, even if some employees do not go back to work.

Here would be the main rules you need to follow to qualify for full PPP forgiveness, because it pertains to the employees and payroll:

You will owe money if you do not use a minimum of 75% of the loan on payroll.
You will also owe money if you don't maintain your staff and payroll.
- Number of Staff: The loan forgiveness will disappear if you reduce your full-time employee headcount.
- Level of Payroll: The loan forgiveness may also be reduced should you decrease salaries and wages by a lot more than 25% for just about any employee that made less than $100,000 annualized in 2022.
- Re-Hiring: You've until June 30, 2022 to restore your full-time employment and salary levels for just about any changes made between February 15, 2022 and April 26, 2022.

Exemption For PPP Recipients Whose Employees Refuse Rehire Offer

There is definitely an exemption which states that PPP recipients who have furloughed/laid-off employees who don't wish to go back to work can still get forgiveness on loans. Note: the exemption is just for maintaining your employee headcount; you’ll still need spend 75% from the loan on payroll to be eligible for a forgiveness.

From the united states Treasury Department’s FAQ page about PPP loans:

Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 from the CARES Act and SBA’s implementing rules and guidance) be reduced when the borrower let go an employee, provided to rehire exactly the same employee, however the employee declined the offer?

Answer: No. As an exercise of the Administrator’s and also the Secretary’s authority under Section 1106(d)(6) from the CARES Act to prescribe regulations granting de minimis exemptions in the Act’s limits on loan forgiveness, SBA and Treasury plan to issue an interim final rule excluding laid-off employees whom the borrower provided to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to be eligible for a this exception, the borrower must have designed a good faith, written offer of rehire, and also the employee’s rejection of that offer should be documented through the borrower. Employees and employers must be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

So what am i saying? Essentially, your business won't be penalized for reducing your headcount because a worker will not go back to work, so long as you document the employee’s rejection of your offer (and the offer is for the same compensation and quantity of hours). However, to qualify for PPP loan forgiveness, you will still need to spend 75% of the loan on payroll expenses, including employee compensation, taxes, and benefits. So, you will likely need to hire new employees if a number of your old employees will not return. Remember, you can also spend as much as 25% of the loan on other operating expenses, such as rent, mortgage, and utilities.

A couple more things to note are that you can use PPP funds to pay for your furloughed employees to remain home (not return to work yet), which you can increase employees’ wages and/or benefits so you are spending exactly the same amount on payroll, even when your headcount decreases.

FAQs About PPP & Payroll

Just how long must i make use of the funds?

To be forgiven, loan proceeds should be spent within eight weeks of finding the loan, as the loan is specifically intended to cover 2 months of payroll.

Do I have to rehire immediately?

You may have until June 30, 2022 to rehire employees to maintain your payroll. And considering that you simply have 8 weeks to invest the cash, you will want to start rehiring as soon as you receive your PPP.

Must i rehire exactly the same employees?

There isn't any requirement that you need to rehire the same employees. If some employees don’t want to or can’t return to work, you can hire new employees.

Will i count as an employee?

Yes, the company owner is an employee from the business as long as they are on the payroll.

Do my employees have to do almost anything to receive money?

If you want to pay your employees to stay home, that’s a choice too. When you must make use of the PPP to pay for employees, it's totally inside the business owner’s discretion whether you've them go back to work (or work in any capacity).

Can one make use of the PPP to give employees bonuses or raises?

Yes, within reason. If some employees don’t wish to return, you may need to raise their pay to improve your payroll expenses for PPP reasons, and to entice employees to return to work. You might decide to offer hazard pay bonuses and/or cost-of-living based wage increases. However, wages can’t exceed $100K per person (annualized) and then any wage increases or bonuses need to be reasonable—for instance, you can’t suddenly lift up your employee’s salary from $40K to $100K.

What To complete If Your Employees Won’t Come Back

There are several actions you can take if you received a PPP loan but your employees won’t return. Each business’s situation differs therefore the best solution will depend on your unique circumstances. The most important thing is that you document the employee’s refusal revisit work so that you can present that when trying to get PPP loan forgiveness; another tips are optional and dependent on your circumstances.

Tip 1: Formalize Your Offer

Even if the employee has already expressed to you they don’t wish to return, you have to present all of them with a great faith, written offer of rehire. To be able to entitled to the PPP exemption that excludes laid-off employees whom the borrower has offered to rehire but refused to come back, the employer must document the employee’s rejection from the return-to-work offer. Observe that the offer must range from the same quantity of hours and the same wages these were making before the crisis.

Tip 2: Possess a Candid Discussion

It’s advisable to possess a discussion together with your employee to discover why they don’t want to return to work. It might be the case they want to return but possess a justification why they can’t, for example they cannot find childcare or they have a high-risk health condition that makes them especially susceptible to risk of infection in the workplace. In the type of cases, your company may be eligible for any special COVID-19 tax credit should you provide the employee extended paid leave (though this credit can't be combined with PPP).

If employees don’t want to return since they're making more money on unemployment, you are able to gently remind them that to be able to fulfill the relation to your PPP loan, you'll have to document they turned down your work offer, which will disqualify them from receiving unemployment benefits. You might also mention for them the current expanded unemployment benefits won't last, which it’s a difficult job market at this time.

Tip 3: Make Changes To Your Workplace

If unsafe conditions are at the forefront of your furloughed employees’ minds, it may be wise to make changes to your workplace and revise your health and safety policies. In addition to following all COVID-19-related CDC guidelines highly relevant to your industry, that you can do your best to deal with specific employee concerns to make your workplace safer and increase social distancing.

Some workplace policy changes may be so as as well. For instance, even if you didn’t previously offer paid sick days, you might consider updating your time-off policy to include some paid sick days.

Tip 4: Give Raises & Expanded Employee Benefits

Depending on whether you can afford to do this, you might consider offering returning employees temporary hazard pay, or even a permanent raise. You could also offer employees a non-monetary payroll help you previously didn’t offer, such as health insurance or PTO. Besides enticing employees to return, increasing employee wages and/or benefits will help you meet the requirement to invest 75% of your PPP on payroll, especially if a number of employees won't go back to work.

Of course, many businesses are hurting financially at this time and aren’t inside a great position to provide raises or expanded employee benefits. However with the proceeds of the PPP, you may be able to a minimum of provide a temporary bonus or benefit.

Tip 5: Pay Employees To Stay Home

If you so choose, you should use your PPP proceeds to pay for employees to remain at home for up to 8 weeks. Most businesses will obviously not be able to do that while still maintaining operations, since you need employees to operate your company. But it's a choice.

Tip 6: Hire New Employees

Some businesses might want to hire new employees to exchange the worker(s) that are not returning. You need employees to keep your business operating, and again, you may even have to hire employees to meet the necessity that you spend 75% of your loan proceeds on 8 weeks of payroll. With current unemployment rates, it should not be too difficult to locate workers at this time.

Tip 7: Consider The Upside Of Fewer Employees

Many businesses need a ton fewer employees compared to what they did before the crisis, both because business is down and because they need to implement social distancing. So, the PPP forgiveness requirement to maintain employee headcount has a lot of businesses scrambling at this time. If an employee doesn’t want to return, and you can document they rejected your offer, you're “off the hook” in the sense that you simply don’t need to maintain your headcount and may still be eligible for a loan forgiveness. It’s still tricky for the reason that you have to keep your same payroll, however, you could give everyone a raise or enhanced benefits to help counterbalance the lack of a worker. Or, should you be initially planning to spend 100% from the loan on payroll, with a couple of fewer employees, maybe you’ll now in a position to take the from the loan (as much as 25%) on other expenses like rent.

Tip #8: Accept Partial Loan Forgiveness

Remember that PPP forgiveness is not all-or-nothing. If some employees don’t wish to come back and it’s not possible to increase existing employees’ compensation or to find replacement employees in time, you might only qualify for partial forgiveness in your PPP loan. Or, maybe you don’t want to force an employee’s hand to make them formally reject your rehire offer, and thereby disqualify them from receiving unemployment benefits. Take into account that even if you have to take a hit and won’t qualify for full loan forgiveness, your business could still take advantage of a partially forgiven PPP loan.

Other Resources For Coronavirus Affected Businesses

Need more details about PPP loans and other COVID-19 related small company topics? Check out the following helpful information on further reading, or visit our COVID-19 small business hub and you'll discover all of our coronavirus small business content.

PPP Forgiveness: What To Do If Employees Won’t Return

Why Employees Don’t Wish to Come Back