If your business receives a PPP (Paycheck Protection Program) loan and you make an offer to retain your employees, they will likely not be eligible for unemployment benefits.
The global COVID-19 crisis has created a very problematic situation… Suppose you struggle and sacrifice to keep your employees employed, even though you have been closed down due to COVID-19 or have taken a severe cut in revenue, and you are fortunate enough to obtain a PPP loan to help ease the financial burden of paying your employees despite very difficult business circumstances. However, rather than your employees thanking you for being so concerned about their welfare, they are furious that you reinstated their employment. Think this can’t happen? It can and it has.
Due to new modifications to unemployment benefits, as well as an increase of $600 per week in state unemployment benefits, some workers are able to take unemployment and earn more than their full wages, depending on their pay level.
While this was not the intention of the increased federal assistance, due to the emergency relaxation of the rules, it does seem to be causing business owners a lot of headaches.
First and foremost, you should let your employees know that:
The unemployment benefit is temporary. The $600 supplement is a temporary benefit that expires on July 31, 2020. Starting on August 1, the benefit will return to the normal amount allowed by your state. That’s probably somewhere in the range of 40% to 45% of your previous working income. Plus, the Economic Policy Institute predicts a nationwide unemployment rate of 15.6% in July of this year, so it may likely be very tough to find a job at that time.
They can lose their benefits. Employees earn more at their job than just the paycheck. Though we don’t usually quantify them, healthcare and retirement benefits are worth a lot more than we often realize. According to the Bureau of Labor Statistics, benefit costs on average account for nearly 30% of an employee’s total compensation. To learn more about Focus HR’s benefit options, click here.
They may not qualify for unemployment. You are required to accept suitable job offers if you are receiving unemployment. One can’t reasonably argue that an offer to resume a job they already had isn’t suitable, unless you turn down a job for a coronavirus-related reason.
A Little About PPP Loan Forgiveness
If your employees still elect to “stay unemployed” rather than remain on your payroll, this can create a sticky situation for you. Under the terms of the PPP loan, 75% of the money must be spent on payroll during the 8-week “covered period” and the remainder spent on approved expenses such as business rent, mortgage interest, and utilities, in order to have your loan forgiven.
However, under the terms of the PPP loan, you need to demonstrate that you maintained or restored your former levels of employment of compensation, not necessarily that you kept the same employees. So, you can restore your former headcount and payroll, or rehire within the parameters of the PPP requirements and still have your loan forgiven.
Some additional points about loan forgiveness to know:
- You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
- Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
- Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
Bright News on the Horizon
On May 3rd, a new guidance from the U.S. Small Business Administration (SBA) stated that the SBA and Treasury plan to issue a new rule excluding laid-off employees whom the employer offered to rehire (for the same salary/wages and same number of hours) from the loan forgiveness reduction.
The interim final rule will specify that a borrower may exclude an employee from loan forgiveness calculations if the borrower made a good-faith, written offer of rehire and also documented the employee’s rejection of that offer.
The new guidance also warns that employees could be banned from receiving unemployment benefits if they turn down a reemployment offer. It states that “Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation,” which did not provide specifics on how that process might work.
If you have questions or need help documenting your employment offers, please contact your Focus HR partner today.
