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Q: “Can you provide an example of how to calculate the new 40 hr FTE for the PPP loan? I’m confused if an employer needs to look at each week separately first (capping 40 hours first) and then averaging them; or does the company add all hours during the period and divide by the number of weeks? Can you walk me through 2 examples? What FTE count are each of these?”

Date

May 21, 2020

Read Time

4 minutes

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Answered by Aria Eckersley

A: The new PPP loan forgiveness application released by the SBA on Friday night (linked here) clarified certain points about eligibility for forgiveness, including how to count full-time equivalent employees (FTE) during the Covered Period (or the Alternative Payroll Covered Period (each defined below)).

  • Note: the Alternative Payroll Covered Period provided a favorable clarification about the timing of payroll – essentially (and as discussed below), borrowers with a biweekly (or more frequent) payroll schedule can choose to calculate their eligible payroll costs using the 8 week period that starts on the first day of their first pay period after the loan disbursement date

To calculate average FTEs, for each employee, you enter the average number of hours paid per week, divided by 40 and then rounded to the nearest tenth. The maximum count for each employee is 1.0 (so any hours paid over 40 hours will still count as 1.0) (option #1). A simplified calculation method that borrowers can choose to use assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours (option #2). Many of the calculations provided in the forgiveness application are difficult to grasp without examples, so we updated the chart below to run the numbers for these two options. You should run both calculations for your specific facts to determine which method is preferable.

This calculation is used to determine if a borrower’s loan forgiveness amount must be reduced because of a reduction in full-time equivalent employees. Remember, a borrower is exempt from this reduction if both (1) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (2) the Borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.

*Add the hours per week for each employee over the 8 weeks and divide by 8 to get their average hours per week during the applicable period (number reflected in column 2). For example, from Example 1, Employee A:

Definitions from the Forgiveness Application:

  • Alternative Payroll Covered Period: For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”).
    • For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20. Borrowers who elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference in this application to “the Covered Period or the Alternative Payroll Covered Period.”
    • However, Borrowers must apply the Covered Period (not the Alternative Payroll Covered Period) wherever there is a reference in this application to “the Covered Period” only.
  • Covered Period: Enter the eight-week (56-day) Covered Period of your PPP loan. The first day of the Covered Period must be the same as the PPP Loan Disbursement Date. For example, if the Borrower received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, June 14.
  • Eligible payroll costs: Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the eight-week (56-day) Covered Period (or Alternative Payroll Covered Period) (“payroll costs”). Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.
    • Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period). For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period. Count payroll costs that were both paid and incurred only once. For information on what qualifies as payroll costs, see Interim Final Rule on Paycheck Protection Program posted on April 2, 2020 (85 FR 20811).
  • FTE Reduction Safe Harbor: A safe harbor under applicable law and regulation exempts certain borrowers from the loan forgiveness reduction based on FTE employee levels. Specifically, the Borrower is exempt from the reduction in loan forgiveness based on FTE employees described above if both of the following conditions are met: (1) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (2) the Borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.

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