If you’re applying for the Paycheck Protection Program—and you want to have your loan forgiven—you will need to maintain your previous employee headcount and salary levels.
That’s easier said than done, since lots of businesses have complicated employee situations. Here are some of the most common questions we’ve heard around PPP and employee rehiring.
I laid off my employees in March. Can I rehire them with PPP funds?
Yes! If you had previously laid off your employees, you can go ahead and rehire them using PPP funds. That is actually the intended purpose of the PPP.
If you reinstate your FTE count by June 30, you qualify for full forgiveness on your payroll costs. Otherwise, you will need to pay back a portion of costs.
What happens if I only hire back some of my employees?
If by June 30, you only hire back some but not all of your employees using PPP funds, you won’t be able to have your full PPP loan amount forgiven. The forgivable amount will decrease in proportion to the ratio between your headcount, or full-time equivalents (FTE), during the forgivable period and your pre-pandemic FTE.
Let’s say you have three employees and they each made $3,000 per month, meaning your PPP loan amount was $22,500 (3000 x 2.5). You had to lay them off in February due to COVID-19.
If you only hire back two out of the three employees before June 30, your workforce is 67% (two thirds) of your original headcount.
Over the eight weeks of the PPP period, you spend $12,000 on your employees, and all your remaining funds on eligible expenses. However, non-payroll expenses are limited to 25% of the loan amount ($5,625). So $17,625 is eligible for forgiveness, not the full $22,500.
Furthermore, when it comes to calculating your forgivable amount, because your workforce is smaller, your forgivable amount is multiplied by 0.67. You would be able to have $11,808.75 forgiven.
What happens if I want to hire back all my employees, but some reject the offer?
Short answer: that’s okay—it won’t affect your forgiveness levels.
But you have to meet the following qualifications:
You must have made an written offer to rehire in good faith (either through email or a physical offer on paper)
You must have offered to rehire for the same salary/wage and number of hours as before they were laid off
You must have documentation of the employee’s rejection of the offer (again, email proof is fine, or even better, a written document with the employee’s signature showing they reject the offer)
Note that employees who reject offers for re-employment may no longer be eligible for continued unemployment benefits. Generally, unemployment agencies require you to regularly check in with them on your job application status. If you report that you rejected a “suitable” job offer while on unemployment benefits, your benefits may be taken away.
My business just uses contractors. Can I hire them onto payroll and pay them with PPP funds?
Not really, no.
Your PPP loan amount is determined by your 2019 payroll numbers (or net profit numbers if you’re self-employed). So if you had three employees in 2019 who made $3,000 each month, you will need to keep those three employees on payroll at the same salary.
You are welcome to hire your contractors as employees, but as they were not on your payroll records pre-COVID, you may not qualify for forgiveness on those costs. And keep in mind, the cost of independent contractors is not considered a payroll cost under the PPP program.
Do I have to rehire the same employees? Or can I keep my headcount the same, but with different people?
From the guidance released so far, it appears you don’t have to rehire the same employees. The SBA’s forgiveness application does not make a distinction between new and existing employees.
Can I restructure compensation in my business? Can I pay myself more and my employees less?
This situation isn’t specifically covered by the official U.S. Treasury guidance. However, it does seem to go against the spirit of the program, which involves keeping headcount and salary levels at the same pre-COVID levels. You would be safer leaving all compensation the way it was before.
Can I use PPP funds to give my employees bonuses?
The short answer is no. Your PPP funds will be enough to meet your pre-COVID employee wage obligations for eight weeks. So you are welcome to pay your employees a bonus, but you will still need to pay them the same wage as before COVID, and your PPP funds will only cover that wage.
That being said, since the cash to cover their salary is coming from the PPP program, you should feel free to give your employees a bonus out of the business, since you’re using less money than usual for payroll.
Once my PPP funds run out, can I make layoffs again?
Yes. If after the weeks weeks the PPP covers, your business’s financial situation has not improved, you are able to put employees on furlough or lay them off if necessary. The employees would be eligible to claim unemployment benefits.