We entered the week hoping for additional guidance on PPP loan forgiveness calculations which, unfortunately, didn’t come.  The SBA and US Department of the Treasury did however put out some new guidance that will apply to some of our clients, which we will quickly highlight with our comments.

1. A PPP borrower may not be penalized for not getting to the right number of FTEs during the 8-week forgiveness period if employees refuse to come back to work.  The SBA and Treasury “intend to issue an interim final rule excluding laid-off employees whom the borrower offered 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 qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.”

Comments:  Note the importance of proper documentation here with the borrower being required to make a written offer of rehire and then to document the rejection by the employee.  As we have been sharing with our clients, an individual refusing a job offer for their old job may mean they are no longer legally qualified to receive unemployment benefits.

Closely related to this but not directly tied to the PPP, the SC Department of Employment and Workforce announced two important updates relating to unemployment insurance benefits that all employers will want to familiarize themselves with. First, the agency announced that you will be required to provide a notification to employees who have been separated from employment. Second, it has provided instructions for dealing with employees who refuse an offer to return to work. This second update addresses a concern of many clients about proactively notify SCDEW that an employee has refused a job offer to return to work, and should therefore stop receiving unemployment benefits.

2. The SBA extended the PPP safe harbor repayment date from May 7^th to May 14^th with the intention of providing additional guidance on how it will review the certification prior to May 14^th.

Comments:  The SBA continues to place emphasis on borrowers needing to review the certification of need on the Borrower Application Form.  As a reminder, this certification states, “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  While we continue to believe the SBA is attempting to persuade or force public and private equity backed companies to return the money as it was not intended for them, it will be interesting to see what the new guidance will say regarding this certification.  While we are unable to advise clients on their PPP eligibility relative to the certification of need (consult with your legal counsel), we continue to suggest clients document your reasoning and/or any data or analysis performed to determine your need for the loan.  Be prepared to tell your story if/when the time comes.

3. Employers that repay the PPP loan by the safe harbor deadline of May 14^th are eligible for the Employee Retention Credits.

Comments: While this hasn’t been as hot of a topic given the majority of our clients have pursued PPP funding, the Employee Retention Credit may now be an option for more companies as PPP loans are returned.  As a reminder, the CARES Act created this employee retention tax credit for certain employers impacted by COVID-19. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.

4. An applicant for PPP “must count all of its employees and the employees of its US and foreign affiliates, absent a waiver of or an exception to the affiliation rules.”

Comments: This was a bit of surprising guidance that seemed to change what was put out previously regarding employee size standards.  The CARES Act refers only to “500 employees” with no mention of these being limited to US employees, but then IFR 1 issued April 2^nd states, “You are eligible…if you have 500 of fewer employees who principal place of residence is in the United States.”  Now the SBA seems to have changed this.  While this may only impact a small portion of our clients, it illustrates that the rules can, and are, changing.

As always, we are closely watching for new guidance and will provide updates as soon as we know anymore about the certification of need or the forgiveness calculations.  If you have questions or need assistance, we are here to help.  Reach out to your WR Partner or your relationship manager.

WR COVID-19 Task Force