COVID-19 UPDATE: Clarification on PPP Rehiring Mandate May 05,2020
We have heard from many operators on the challenges to comply with PPP rehiring mandates in an era of enhanced unemployment benefits. In a series of letters and filings with the government starting April 9, the National Restaurant Association urged Treasury to fully utilize its “de minimis” exemption authority under the CARES Act to prevent employers from being penalized.
Earlier this morning, the Treasury Department released new guidance on PPP loan forgiveness provisions. Citing their “de minimis” exemption authority, they advise that an employer will not be penalized with reduced PPP loan forgiveness if an employee rejects an offer to return to their job.
You can view the full guidance document here, and relevant passages are pasted below. We are engaging Treasury today seeking guidance on a number of other issues, including:
Today’s guidance will strengthen the ability of some restaurants to utilize their PPP loans, but we still do not view the PPP as an adequate recovery program for the restaurant industry. National Restaurant Association Executive Vice President of Public Affairs Sean Kennedy was interviewed on Fox News Sunday to reiterate that point. From Treasury guidance issued last night, May 3
- Calculating FTEs during the covered period
- Using aggregate wages vs average wages in calculating total payroll
- Treatment of unspent funds and forgiveness of eligible expenses from a PPP loan
- Payroll computation: cash or accrual basis?
40. Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, 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. From Association comments to Trump Administration on April 27
IV. How will SBA “De Minimis” Exemption Authority Be Used for Loan Forgiveness?
Pursuant to the Act, the SBA and the Secretary of the Treasury have explicit “de minimis” exemption authority under PPP in order to protect businesses that face reductions in loan forgiveness. Please provide clarification as to how this exemption authority will be utilized. Will it be used to protect businesses that have major declines in sales revenue and/or businesses that have challenges recruiting FTEs to achieve loan forgiveness?
Employee retention levels will be a continued challenge for restaurants, as many have changed their business model to accommodate off-premise and online ordering, decreasing the need for servers and other workers. Additionally, sustained social distancing protocols will alter restaurant operations, which will reduce revenue opportunities and staffing levels.
Given these economic realities and other existing programs, we suggest this express authority be used to exempt small businesses from loan forgiveness reduction if they have made good faith efforts to recruit and retain FTEs who nevertheless decline the employer’s offer during the covered period. There should be a safe harbor so that both parties can be held harmless during this time of unprecedented economic turmoil. From Association letter to Congress on April 9
Exemptions from Loan Forgiveness Reduction: Congress should re-emphasize that the SBA Administrator and the Secretary of the Treasury can act on their explicit “de minimis” exemption authority under PPP in order to protect businesses that face reductions in loan forgiveness, especially if businesses have major declines in sales revenue. Employee retention levels will be a continued challenge for restaurants, as many have changed their business model to accommodate off-premise and online ordering, decreasing the need for servers and other workers. Additionally, sustained social distancing protocols will alter restaurant operations, which will reduce revenue opportunities and staffing levels. From Association letter to Trump Administration on March 31Potential Reduction of Loan Forgiveness (p. 45 – 50)
The amount forgiven of the Loan will be reduced “proportionally” by any reduction in employees retained compared to the prior year. This needs to be a “sliding scale” rather than a strict ratio. In an industry, where recruitment and retention is the top challenge, with 100% turnover year over year, it is impossible for restaurants to maintain the precise number of 2019 FTEs during a massive economic disruption. The retention level must reflect that reality. The hiring levels also reflect the realities of hiring or rehiring during a pandemic situation where many previous FTEs may elect to care for family members or observe quarantine protocols. o Pursuant to the Exemption section (p. 49), the SBA Administrator and the Treasury Secretary may prescribe regulations granting de minimis exemptions from the requirements under this subsection. This provision offers the SBA and Treasury expansive authority on the forgiveness parameters, which must be illustrated clearly for potential borrowers.