# How to Calculate FTE for PPP Loan Forgiveness

If you’re looking for information on how to calculate FTE for PPP loan forgiveness, you’ve come to the right place. In this blog post, we’ll walk you through the steps you need to take to get the most accurate calculation possible.

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## What is FTE?

FTE stands for full-time equivalent and is a way to compare the number of full-time employees you have to the number of part-time employees when determining how many PPP loan forgiveness.

To calculate your FTE, you will need to take the total number of hours worked by all employees in a week and divide it by 40. This will give you your FTE for that week.

For example, if you have two full-time employees who work 40 hours each per week, and two part-time employees who work 20 hours each per week, your total FTE would be 3 (80 hours divided by 40 = 2 full-time equivalent employees + 2 part-time employees divided by 40 = .5 full-time equivalent).

You will need to calculate your average FTE for the covered period in order to determine how much of your PPP loan may be forgiven.

## How to Calculate FTE

In order to qualify for PPP loan forgiveness, you must ensure that you maintain your staff and employee levels. You will need to calculate your Full-Time Equivalent (FTE) employees to prove to the SBA that you have not reduced your staff levels.

### Full-time equivalent (FTE) is a way to measure the number of full-time employees an organization has.

FTE can be used to measure the number of full-time employees an organization has, or it can be used to measure an individual employee’s hours worked.

To calculate FTE for an organization, divide the total number of hours worked by all employees in a given period by the number of full-time equivalent employees.

To calculate FTE for an individual employee, divide the employee’s total hours worked in a given period by the number of hours a full-time employee would work in that same period.

### The FTE calculation takes the total number of hours worked by all employees in a week and divides it by 40.

Now that you know how to calculate your business’s full-time equivalent (FTE) employees, you can use that information to determine how much of your Paycheck Protection Program (PPP) loan may be eligible for forgiveness.

As you may recall, the PPP loan program was created by the CARES Act to help small businesses keep their workers on the payroll during the COVID-19 pandemic. If at least 60% of your PPP loan is used for payroll expenses, and if you maintain or restore your pre-pandemic employee headcount and salary levels for a specified period of time, you may be eligible for forgiveness of the remainder of your loan.

However, there are limits on how much of your PPP loan can be forgiven if your business’s FTE count decreases during the covered period. Specifically, businesses that experience a reduction in FTE employees of more than 25% during the covered period are ineligible for full loan forgiveness.

To determine whether your business meets this criterion, you will need to calculate both your average FTE employees per week during the covered period, as well as your average FTE employees per week during a specified reference period (either February 15 to June 30, 2019, or January 1 to February 29, 2020). If your business’s average FTE employees during the covered period is less than 75% of its average FTE employees during the reference period, then it will not be eligible for full forgiveness of its PPP loan.

If you have any questions about calculating your business’s FTE employees or determining its eligibility for PPP loan forgiveness, please contact our office. We would be happy to help.

## What is PPP?

The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.

### The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.

The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.

The PPP loan program is part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was passed by Congress and signed into law by President Trump on March 27, 2020.

Under this program, small businesses and sole proprietorships can apply for loans of up to \$10 million to cover payroll and other qualifying expenses through June 30, 2020.

Loan payments will be deferred for six months, and no collateral or personal guarantees are required.

Forgiveness of the loan is also available under certain circumstances.

## How to Calculate PPP Loan Forgiveness

The PPP loan forgiveness process involves understanding how to calculate FTE. FTE stands for full-time equivalent employees. You will need to know your average FTE for the entire covered period to apply for loan forgiveness. This can be a difficult calculation, but we will walk you through it step by step.

### The PPP Loan Forgiveness Application has two FTE reduction safe harbors:

The PPP Loan Forgiveness Application has two FTE reduction safe harbors:

1) The FTE Reduction Safe Harbor allows a borrower to exclude any reductions in employee head count or hours worked during the Covered Period if the borrower can document:

-an inability to rehire individuals who performed services for the borrower during the period February 15, 2020 and April 26, 2020 and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or

-an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or any other state public health official may impose on businesses operating during that period to mitigate or prevent the spread of COVID–19.

2) The Alternative FTE Reduction Safe Harbor allows a borrower that can document a reduction in business activity between February 15, 2020 and April 26, 2020 compared to January 1 – February 29 ,2020 may exclude such reductions from its calculation of employee head count.

#### The borrower reduced its FTE employees in the period beginning February 15, 2020 and ending April 26, 2020, as compared to the FTE employees in the borrower’s pay period that included February 15, 2020; or

To figure out your FTE reduction, you’ll want to take the average number of FTE employees during the covered period (or alternative payroll covered period) and divide it by the average number of FTE employees per month during the chosen reference period.

Let’s say that you had an employee who worked part time during the covered period, but full time during the reference period. For this employee, you would count them as .5 of an FTE.

If you use a biweekly or more frequent payroll schedule, you would use the number of hours paid divided by 40 to arrive at your average FTE per employee for that particular pay period.

#### The borrower reduced its FTE employees between January 1, 2020 and February 29, 2020, as compared to the average number of FTE employees per month in 2019.

The forgiveness amount is determined by the number of full-time equivalent (FTE) employees retained compared to a reference period. The reference period is generally the average number of FTE employees per month from February 15, 2019 to June 30, 2019 or January 1, 2020 to February 29, 2020. You can elect to use either time period.

To calculate your FTE number, divide the total number of hours paid to employees during the covered period by 24. If an employee worked 40 hours during a week, they would count as 1.67 FTEs (40 ÷ 24 = 1.67).

You then compare your FTE counts for the covered period with one of two reference periods:
-February 15, 2019, to June 30, 2019
-January 1, 2020, to February 29, 2020

Depending on which interval you choose as your reference period will determine how you calculate your staff reductions for purposes of loan forgiveness:
-If you choose the first option and your staff has increased or stayed the same since June 30th, 2019 , then you will not have any reductions in FTEs.
-If you choose the second option and your staff has decreased since February 29th , 2020 then you will have reductions in FTEs.

### The maximum loan forgiveness amount is the lesser of:

1. The total of eligible payroll costs incurred during the covered period; or
2. The sum of 2.5 times your average monthly payroll costs incurred during either the 2019 calendar year or the one-year period before you received your PPP loan

To calculate your maximum loan forgiveness amount, you will need to determine two things:
1. Your eligible payroll costs
2. Your average monthly payroll costs

Eligible payroll costs include:
-Salaries (capped at \$100,000 per employee per year)
-Wages
-Vacation pay
-Parental, family, medical, and sick leave
-Health insurance premiums
-Retirement contributions
-State and local taxes assessed on employee compensation

#### The sum of the following costs incurred and paid by the borrower during the 8-week period beginning on the date the borrower received its PPP loan:

1.1 The sum of the following costs incurred and paid by the borrower during the 8-week period beginning on the date the borrower received its PPP loan:
-(i) payroll costs;
-(ii) any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation);
-(iii) rent obligations under a leasing agreement in force before February 15, 2020; and
-(iv) utility payments for a service initiated before February 15, 2020.

#### 1. Payroll costs;

In order for your PPP loan to be forgiven, you must use at least 60% of the loan for payroll costs. Payroll costs include:

-Salaries (capped at \$100,000 on an annualized basis for each employee)
-Wages
-Vacation pay
-Parental, family, medical, and sick leave
-Health insurance premiums
-Retirement benefits contributions
-State and local taxes assessed on employee compensation

#### 2. Interest payment on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation);

To be eligible for PPP loan forgiveness, you must use at least 60% of your loan proceeds for payroll expenses. The remaining 40% can be used for eligible non-payroll expenses, including interest on your mortgage, rent, utilities, and interest on any other debt obligations that were incurred before February 15th, 2020.

You will need to calculate your Full-Time Equivalent (FTE) employees to determine the amount of your loan that can be forgiven. To do this, divide the average number of hours worked per week by each employee by 40. The maximum forgiveness amount is 2.5 times your average monthly payroll costs.

Here is an example:
Let’s say you have three employees who work 40 hours per week, and two employees who work 20 hours per week.
Your average weekly hours worked would be (40+40+40+20+20)/5= 36
Your FTE employees would be (40+40+40)/3= 1.33
The amount of your loan that could be forgiven would be 2.5 x (36x1.33)= \$2,500

#### 3. Rent obligations under a covered lease agreement; and

In order to determine whether your organization is eligible for PPP loan forgiveness, you must first calculate your Full-Time Equivalent (FTE) employees.

The SBA has provided a simplified method to calculate FTE employees that is applicable to all borrowers. To use this method, divide the total number of hours paid to employees during the covered period by 2,080. This calculation should be performed for each employee, and the total number of FTE employees should be summed across all employees.

However, if you have already submitted your PPP loan forgiveness application using the SBA-approved Form 3508 or 3508EZ, you may calculate your FTE employees according to the instructions provided in those forms.

In order to meet the 75%/25% rule and maximize your loan forgiveness amount, it is important that you maintain or increase your FTE employee count from pre-pandemic levels. If you have any questions about how to calculate your FTE employees or which method is right for you, please contact us. We are here to help!

#### 4. Utility payments for a service initiated before February 15, 2020; or

PPP loan forgiveness is based on the amount of money you spend on payroll and other eligible expenses during the covered period.

You can use either an 8-week or 24-week covered period. The SBA will forgive the lesser of:
-The amount spent on eligible expenses during your covered period, or
-The amount of the PPP loan.

Eligible expenses include:
-Payroll costs (including salary, wages, tips, leave, and health insurance premiums)
-Interest on mortgage obligations incurred before February 15, 2020
-Rent payments on leases in force before February 15, 2020
-Utility payments for a service initiated before February 15, 2020; or

You will need to submit documentation to your lender to verify your eligible expenses.

#### The outstanding balance of the PPP loan.

The Paycheck Protection Program loan forgiveness is determined by the total amount of qualified expenses during the covered period divided by your average monthly payroll costs.

To calculate your average monthly payroll costs, you’ll take the sum of your payroll costs from the last 12 months prior to either the date you received your PPP loan or February 15th, 2020 (whichever is earlier), and divide that number by 12.

Then, you’ll multiply that number by 2.5. The maximum amount of PPP loan forgiveness that you can receive is equal to this 2.5 multiplier.

Your total qualified expenses include:
-Payroll Costs: Salary, wages, tips, paid leave, severance pay, health care benefits, and retirement benefits (up to \$100k per employee)
-Interest Payment on any mortgage obligation incurred before February 15th, 2020
-Rent Payments under a lease agreement in force before February 15th, 2020
-Utility Payments for electricity, gas, water, transportation, telephone or internet access for which service began before February 15th

## FTE Reduction Exceptions

The Full-time Equivalent (FTE) Reduction Exception allows borrowers to exclude from their FTE reduction calculation certain positions that were either vacant or paid with Proceeds.

### Borrowers that can document in good faith:

– That they were unable to operate between February 15, 2020 and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020 and ending December 31, 2020 related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19;
– That they are unable to return to their previous level of business activity as a result of federal coronavirus–related guidelines regarding socially distance operations issued after December 31, 2020; or
– That their revenue in any quarter during 2019 was not more than 25 percent below its revenue in any quarter in calendar year 2019 prior to February 15th.

#### An inability to rehire individuals who were employees of the borrower on February 15, 2020;

Thissafe harbor protects borrowers who, in good faith, can document an inability to rehire individuals who were employees of the borrower on February 15, 2020, and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020. To qualify for this exception, borrowers must also demonstrate an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration related to maintaining standards for sanitation social distancing or any other worker or customer safety requirement related to COVID–19.

#### An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or

To qualify for the exception, you must:
-Have made a good faith, written offer to rehire an employee who was an employee on February 15, 2020, for the same salary or wages and same number of hours of work per week, and such offer was rejected by such employee; and
-Be unable to hire a similarly qualified employee for unfilled positions on or before December 31, 2020.

#### An inability to return to the same level of business activity the borrower was operating at before February 15, 2020, due to compliance with guidelines issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.

The SBA has provided guidance that a borrower may be eligible for a loan forgiveness exception if they are unable to return to the same level of business activity as before February 15, 2020 due to compliance with guidelines from the Department of Health and Human Services, Centers for Disease Control and Prevention, or Occupational Safety and Health Administration. These guidelines relate to sanitation, social distancing, or other worker or customer safety requirements related to COVID-19.