No, if your former employees do not wish to return, you can hire new employees for the same hours and wages as the previous employees.
My business is closed. Do I still need to rehire staff I have laid off or furloughed since February?
You must at least try. If you've laid people off since February 15, 2020, try to rehire them as quickly as possible, and put your offer in writing so it's a record. Email is fine! You should offer to rehire any laid off or furloughed employees at their pre-COVID wages and hours. If they decline, either because they do not want to return to work or because they are earning more through Unemployment, you will not be penalized. However, if you have not offered to rehire, your ability to have your loan forgiven could be reduced. You must document your efforts to rehire people and their declines. You must keep documentation for six years.
My employees are collecting EI. Can I still rehire them?
Yes, the PPP funds are meant to encourage you, the employer, to rehire any staff that you may have had to lay off due to the initial impacts of COVID-19. The U.S. Department of Labor notes that employees should not refuse work simply because their unemployment benefits are higher than the amount they would earn from employment. However, if an employee refuses to return to work after your good-faith offer to rehire, your forgiveness amount will not be negatively impacted, provided that documentation is kept. Employers can report suspected EI fraud online. Once an employee receives pay, they should report their income to the state's Department of Labor. If unemployment benefits and payroll are being received in the same period of time, the unemployment office will make the appropriate calculations and the employee may be asked to return a portion or all of the unemployment benefits.
None of my employees are comfortable to go back to having customers inside the shop, but we will do our best to expand the door service hours and menu, so I can hire my people as close to the hours they had before. Can I still file for unemployment for those I keep on payroll that qualify?
If you have received a PPP loan and want to maximize your forgiveness benefit you are required to offer your employees their positions back at comparable hours/wages. If they decline this offer for any reason, your forgiveness will not be compromised, but their eligibility for unemployment might be (unfortunately, while SBA guidance suggests that unemployment compensation might be affected for employees who are offered the opportunity to return and decline it, we have not seen specific guidance on whether this is going to be implemented, or under what circumstances). Conversely, if you choose not to offer all your employees the opportunity to return, the amount of forgiveness for which you are eligible might be reduced. Note, though, that forgiveness calculations will be based on average Full Time Equivalent employees during the covered period compared to your pre-COVID payroll, so if you have replaced previous employees with different employees working similar hours and wages, you would not be penalized.
Some of our staff were 1099 employees. Can we use PPP funds to rehire them?
Yes, you can – but only if you hire them as W2 employees and not as 1099s. That would effectively increase your headcount and payroll, and there is no restriction against that. Just remember that your PPP loan amount was based on your non-1099 payroll pre-COVID, so you likely won't have enough cash to pay your previous employees AND your 1099s, so you'll need to be sure you have other sources of cash to supplement PPP to cover everyone.
According to the SBA FAQ April 29, 2020 Question # 40: 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? This indicates that if we have a record of an offer being made to an employee to return to work and it is declined, the forgiveness amount will not be reduced. Is this still accurate?
Yes. The regulation has an FTE Reduction Exception that allows for recorded attempts. Please review page 6 of the Loan Forgiveness Application for required documentation that must be maintained as part of the process.
What happens if you can't rehire fully due to organization not able to go back to full operations? Is that a safe harbor for FTE?
Maybe. SBA seems to have provided guidance that that the reduction to forgiveness for FTE reductions will not apply if the borrower is able to document that they have been unable to return their business activity to the same level as it was operating before February 15, 2020, due to compliance with requirements or guidance issued by the Secretary of HHS, the Director of the CDC, or OSHA during the period between March 1, 2020, and December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or other worker or customer safety requirements related to COVID-19.