As widely predicted, the generous federal addition of $600 per week to unemployment benefits has created a perverse disincentive to work for some laid-off employees. Businesses are finding that, as they look to spend PPP loan proceeds by returning furloughed or terminated employees to work, some former employees prefer to remain out of work collecting unemployment checks. The Treasury Department has addressed this situation with the following guidance, making clear that the employer will not be penalized and that the employee will forfeit eligibility for unemployment benefits:

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 the 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.

Employers should make written offers to rehire or return the employee to work, specifying the employee’s rate of pay and position, which should both be the same as the employee previously had. The employer should document the former employee’s response.