How do I determine my FTE and wage reduction for PPP loan forgiveness?

If a business’s headcount and/or employee salary or wages were reduced during their covered period, that reduction might affect the business’s Paycheck Protection Program (PPP) forgiveness. Generally, reducing headcount or salary reduces forgiveness, but there are several exemptions from this reduction. This potential forgiveness reduction applies to each of a business’s First and Second Draw forgiveness amounts.

This article will help businesses determine how any reduction in headcount or employee salary/wages will affect your forgiveness amount.

Reduced Salaries/Wages

A business’s forgiveness amount will be reduced if:

• During the covered period, the business reduced an employee’s salary/wages by more than 25%, relative to the employee’s pay during the most recent full quarter the employee was employed before the covered period. 
• The business does not qualify for one of the exemptions described below.

The employee calculations should be done on a per-employee basis (i.e., not by aggregating all employee pay).  They should cover:

• New employees in 2020 and 2021, and 
• Existing 2019 employees who did not earn more than $100,000 (on an annualized basis) during any period in 2019

The amount a business’s forgiveness will be reduced based on salary/wage reductions is the amount of the salary/wage reduction that exceeds 25%.

Reduced Headcount

Determining FTE Count

To determine the effects of a headcount reduction during the Covered Period, the business needs to calculate its Full-Time Equivalent (FTE) employee count:

• First, determine the FTE count during the covered period:
  • For each employee, determine their FTE count:
    • Divide the average number of hours they worked per week during the covered period by 40.  If that number is greater than 1, cap it at 1.
    • If an employee worked less than 40 hours per week, you can choose ONE of the following approaches (but you must use a consistent method across all employees):
      • Calculate the average hours the employee was paid per week during the covered period and divide that by 40, OR
      • Use 0.5 as the FTE count for each employee who worked less than 40 average hours per week. 
  • Add up the FTE count for all employees.
    
    
• Second, determine a reference period:
  • Feb 15, 2019, through Jun 30, 2019, 
  • Jan 1, 2020, through Feb 29, 2020, or
  • If you’re a seasonal employer, choose one of the options above or a consecutive 12-week period between Feb 15, 2019, and Feb 15, 2020.

• Third, determine the average FTE count for all employees during the reference period chosen above.  Use the same calculation method as in step 1 (but use your reference period instead of the covered period).
  
  
• Fourth, if the average FTE count for your covered period is less than your reference period, determine the percentage decrease.
  
  
• Fifth, reduce your forgiveness amount by the percentage decrease
  • If the number of FTE employees for your covered period is less than the number of FTE employees for your reference period, determine the proportion of the reduction (e.g., 10 FTEs reduced to 8 FTEs = 80%).
    
    
• Lastly, multiply the forgiveness amount by the proportion you calculated above.

Important things to consider when calculating FTE:

• For employees that were fired for cause, voluntarily resigned, or requested a schedule reduction during the covered period, you’ll keep them at the same FTE count as before they left.
• These rules apply to both First and Second draw loans.

Reductions in Both Salary/Wages and Headcount

If a business reduced both salary/wages by more than 25% and reduced headcount during the covered period, then the business should:

• Reduce your forgiveness amount by the amount the salary/wage reduction exceeded 25%, and
• Then multiply that amount by the proportion that the business reduced FTE (during the covered period relative to the reference period).

Exemptions from FTE/Salary Reductions

In some situations, the business may be able to exclude FTE or salary/wage reductions when calculating forgiveness. Review the information below to determine if you qualify for an exemption.

Both FTE and Salary/Wage Reductions Exemptions

• For both reductions in FTE count and salary/wages, a business does not need to reduce its forgiveness amount if its PPP loan is for $50,000 or less (unless you and your affiliates got more than $2M in PPP loans).
• If the business reduced FTE or salary/wages between Feb 15, 2020, and April 26, 2020 (known as the “Safe Harbor”) and restored FTE levels or salaries/wages to the same level as the Feb 15, 2020 pay period by December 31, 2020 (or, for loans made after December 27, 2020, the end of the business’s covered period).

FTE Reductions Exemptions

A business can exclude an FTE reduction during its covered period if any of the following apply:

• All of the following are met:
  • The business made a good faith, written offer to restore the employees’ hours,
  • The offer was for the same salary/wages and the same number of hours as the last pay period before the reduction, and
  • The business maintains records documenting the offer and rejection.

A business is also exempt from any reduction in forgiveness if any of the following apply:

• A business can document in good faith that:¹
  • The business could not rehire employees who were employed before Feb 15, 2020, and
  • The business was unable to rehire similarly qualified people for unfilled positions on or before Dec 31, 2020 (or by the end of the covered period if your loan was disbursed after Dec 27, 2020).
    
    
• A business is able to document in good faith that:
  
  • It was unable to operate at the same level of business activity as before Feb 15, 2020, due to requirements and guidance issued between Mar 1, 2020, to Dec 31, 2020, by the Secretary of Health and Human Services, CDC, or OSHA related to standards of sanitation, social distancing, or other worker or customer safety requirements related to COVID-19.
  • For loans disbursed after Dec 27, 2020, this exemption extends requirements and guidance issued between March 1, 2020, and the end of the business’s covered period.
    
• The business fired an employee for cause, or an employee voluntarily resigned or requested and received a reduction in hours.  For these employees, the business may count the employee(s) at the same FTE level as before the reduction.
  • The business must maintain documentation to rely on this exemption.  

Salary/Wage Reductions Exemptions

A salary/wage reduction does not reduce a business’s forgiveness amount if it is a reduction of 25% or less. 

1 If this exemption applies (i.e., you were unable to rehire employees or find similarly qualified employees):

• You must inform your state unemployment insurance office of any employee’s who rejected a rehire offer within thirty days of the rejection
• You should keep documentation for evidence purposes, including written re-hire offers, written records of rejection, and written records of the attempts to hire similarly qualified people

The information, opinions, and advice in this post are provided for educational purposes only and do not necessarily state or reflect those of Bluevine and/or its partners, including Celtic Bank. Neither Bluevine nor its partners are responsible for the accuracy of any content provided by author(s) or contributor(s). For information about Bluevine products and services, please visit the Bluevine FAQ page. For information about the Paycheck Protection Program, please visit the SBA’s page.