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Q: “The FTE safe harbor says ‘restore its FTE employee levels by no later than Dec 31…’ Does that mean if the company brings its headcount back up to the higher level at any point (even for one week) from the start of the covered period through Dec 31, it’s met the safe harbor and would avoid any reductions?”

Date

June 25, 2020

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1 minute

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Authored by Aria Eckersley

As we understand the current rules, the answer appears to be no. While we’re still waiting for specific guidance from the SBA on questions about restoring FTEs and the related safe harbor, the loan forgiveness application (link here) requires borrowers to enter their total FTE as either 12/31/20 or the date the forgiveness application is submitted, whatever is earlier. So as long as a borrower’s FTE count is at or greater than the FTE count from the pay period, including 2/15/20, on the earlier of 12/31/20 and the application date, they will benefit from the safe harbor. Here is the relevant calculation from the forgiveness application:

From the example table in the question, bringing the FTE count up for one week during the covered period won’t satisfy the safe harbor requirements. What matters is the FTE count on the final day (i.e., the earlier of 12/31/20 and when the borrower submits their forgiveness application).

A technical reading of this rule and calculation makes it seem like borrowers can just “game” the system (still subject to the requirement that borrowers use 60% of loan proceeds on payroll costs) by restoring their FTE count only on that final day and then letting FTEs go the following day after they submit their forgiveness application. Even if this is the case, it appears to be against the spirit of the PPP Act, which was created to keep people on the payroll. We would not be surprised if further guidance is released clarifying this point.

 


Filed under: Corporate

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