The recently passed CARES Act has a provision called the Paycheck Protection Program. This provision was designed to help employers keep and pay their employees. The Act provides that qualifying companies are eligible for loans through the Small Business Administration. The duty to pay these loans depends on certain requirements being met.
The question begs – Must employers rehire workers that they fired or furloughed or does the PPE apply only to workers who the company kept on the company payroll?
Who is eligible for a PPP loan?
To qualify for a loan, entities affected by COVID-19 must generally meet specific size requirements. Some large companies may qualify. Sole proprietors, independent contractors, and self-employed persons may also qualify.
Loan details and forgiveness requirements
The loans will be fully forgiven if, “The funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll).”
Loan payments will also be deferred for six months. The borrowers are not required to provide collateral or personal guarantees. Loans that are not forgiven mature in two years with a one percent interest rate. The loans also should not be subject to small business fees.
“Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.”
The SBA provides FAQs for many employee and employer concerns. A few examples are:
Question: Do PPP loans cover paid sick leave?
Answer: Yes. PPP loans covers payroll costs, including costs for employee vacation, parental, family, medical, and sick leave. However, the CARES Act excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
Question: Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs?
Answer: No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements.
Question: Will a borrower’s PPP loan forgiveness amount be reduced if the borrower laid off an employee and offered to rehire the same employee, but the employee declined the offer?
Answer: No. The Small Business Administration 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
At the California Law Offices of Stephen A. Danz and Associates, our employee rights lawyers are keeping current with the new federal and state laws and regulations that benefit employees. For more information on your employee rights, call us at 877-789-9707 or complete our online contact form to make an appointment. Se habla espanol.