# Food & Agriculture Quarterly June 2020 - Page 12

preceding periods or a consecutive twelve-week period between May 1, 2019 and Sept. 15, 2019. The borrower should choose the time period with the fewest FTE employees. The FTE reduction looks at the borrower’s average weekly number of FTE employees during the covered period and the chosen Measurement Periods. This is calculated by determining the average number of FTE employees per pay period falling in each week. So, a borrower couldn’t avoid this type of forgiveness reduction by hiring a number of employees only at the beginning of the covered period or at the end of the covered period. For purposes of the forgiveness reduction for employing fewer employees during the covered period, the SBA has defined full-time equivalency as an employee who works 40 hours per week. Borrowers may use one of two calculations to compute their total FTE employees: More Precise and Complex Method: For each employee, the Borrower should take the average number of hours paid per week, divide by 40, and round to the nearest tenth (but the number cannot exceed 1.0) ∙ ∙ Example: An employee who works 30 hours per week would be counted as 0.8 (30/40 = 0.75, rounded to 0.8) Example: An employee who works 80 hours per week would be counted as 1.0 (80/40 = 2, but the FTE calculation cannot exceed 1.0) Simple Method: ∙ ∙ Any employee who works 40 or more hours per week = 1.0. Any employee who works less than 40 hours per week = 0.5. Below are some basic examples of how the FTE Reduction may affect forgiveness: FTE Employees Covered Period 50 Chosen Measurement Period 1 80 Measurement Period 2 60 Expected Forgiveness Amount minus any Salary/Hourly Wage Reduction \$100,000 ANALYSIS: Here, the borrower should choose Measurement Period 2 because it has fewer FTE employees, and thus there would be a smaller reduction to the forgiveness amount. The maximum forgiveness amount here would be \$83,333.33 (\$100,000 x (50/60)). Example 2: FTE Employees Covered Period 100 Chosen Measurement Period 1 110 Measurement Period 2 130 Expected Forgiveness Amount minus any Salary/Hourly Wage Reduction \$100,000 ANALYSIS: Here, the borrower would choose the first Measurement Period because it has fewer FTE employees. The maximum forgiveness amount here would be \$90,909.09 (\$100,000 x (100/110)). Keep in mind that the forgiveness amount will not be increased if FTE employees increase. Additionally, the forgiveness amount cannot exceed the maximum amount of the PPP loan. June 30 Safe Harbor The CARES Act allows a business to eliminate any reduction in its forgiveness amount described above if: There is a reduction in FTE employees or an employee’s average annual salary or hourly wages for the period of Feb. 15, 2020 to April 26, 2020, as compared to Feb. 15, 2020, AND By June 30, 2020, the business rehires an employee or increases an employee’s average annual salary or hourly wages to eliminate any reduction. This is described as a “safe harbor,” which incentivizes borrowers to rehire employees or restore average PAGE 12