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
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