On April 20, BRAC released guidance on the complications the expanded federal pandemic unemployment insurance (PUI) caused for businesses considering the use of their Paycheck Protection Program (PPP) loans. The Small Business Administration (SBA) and the Louisiana Workforce Commission (LWC) have provided some additional information that will help businesses struggling with this issue, though will not fully answer the complex questions around when and whether to bring employees back onto the payroll.
As a refresher, unemployment insurance benefits in Louisiana for jobs lost due to COVID-19 are up to $847 per week due to the federal government’s PUI supplement. For hospitality, childcare, and many other jobs, this $44,000 annualized salary is more than annualized wages, potentially incentivizing collection of unemployment over earning a wage. Further, the PPP requires that forgivable expenditures be made in the first eight weeks following receipt of the funds, that the bulk of those expenditures be for payroll expenses, and that both headcount and payroll return to pre-COVID levels.
These facts create questions for employers who have laid off or furloughed employees: 1) when to bring employees back; 2) will they want to return; and, 3) is increased cash flow or full loan forgiveness the right thing to pursue?
Recognizing that businesses throughout the country as facing these issues, the SBA has updated its FAQ on the PPP with the following question and answer:
- Question: Will a borrower’s PPP loan forgiveness amount be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
- Answer: No…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.
This guidance will not make the generous federal unemployment supplement less economically attractive than potentially lower wages, but it does provide some protection for employers acting in good faith.
It also underscores that refusing re-employment may mean forfeiture of eligibility for continued unemployment compensation. Enforcement of this consequence is a state responsibility, however, and the agency charged with it – LWC – has not fully addressed it, having been overwhelmed with processing claims.
LWC staff stated at a meeting in early May that it has developed an enforcement mechanism of sorts. LWC encourages employers to file a Separation Notice when employees refuse an offer to return to work. The form, which can be found here, is ordinarily filed within three days of when an employee is laid off. The agency has said that in filing the separation notice, employers should treat a refusal of work as a “quit.” Eventually, LWC will audit the unemployment benefits paid related to COVID-10 and those connected to a separation notice for refusal of work, will be as an overpayment. Overpayments must be repaid and (if the result of fraud), may lead to criminal and financial penalties.
Unfortunately, this conclusion does not help businesses in the short-term. To make this reporting system helpful to employers and the economy it must be made more widely known. While LWC does inform applicants of the consequences of overpayment, it should also be clear as to how the agency will treat refusal of work. Not only will this provide a better environment for businesses looking to rehire, but it will also save applicants from bearing the brunt of overpayments down the line when LWC has capacity to recoup its losses.
As with so much of the state and federal government response to COVID-19, there are only imperfect solutions to this thorny and widespread problem. For now, if your aim is to maximize your PPP forgiveness, here’s what you should do:
- ask your employees to rejoin your team;
- document everything – layoffs, furloughs, reemployment offers, acceptance of them, refusals of them;
- file separation notices if offers to return are refused;
- try to hire different people for remaining jobs; and,
- know the SBA won’t hold it against you if you make a good faith effort but couldn’t get back up to your prior headcount.
These programs were meant to keep our economy afloat, and hopefully LWC will take further steps to mitigate their unintended consequences by making this issue and the costs for workers and employers known.
Liz Smith
As BRAC’s senior vice president of economic competitiveness, Liz leads the organization’s public policy advocacy, strategy, research, and reform activities aimed at advancing the quality of life and economic competitiveness of the Baton Rouge Region.