You likely applied for your PPP loan months ago, received your PPP loan, and are now in the process of preparing to submit your loan forgiveness application once your lender is ready to accept it (SBA Form 3508 or Form 3508EZ). Borrowers who received a PPP loan before can elect to calculate their eligible costs using either an 8-week or 24-week Covered Period. Borrowers who received their PPP loan on or after must use the 24-week period. Any Borrower who files a loan forgiveness application using a 24-week Covered Period can file their loan forgiveness application before the end of the 24-week Covered Period.
Many Borrowers are still in the process of gathering payroll data, health and retirement costs, rent, utilities and mortgage interest costs so that they can file their PPP Loan Forgiveness Application. Although there may be many questions on various facets of how to calculate eligible payroll and non-payroll costs, the focus of this Alert is on the definition of average Full-Time Equivalent (“FTE”) Employees and how this is calculated.
First, Determine which Loan Forgiveness Application Form to file – Form 3508 or Form 3508 EZ
Before thinking about how to calculate FTEs, the Borrower should know which form to file, as this will impact the computations the Borrower will need to perform for purposes of calculating loan forgiveness. Does the Borrower meet the requirements to file Form 3508 EZ (the short-form filing) or will the Borrower be required to file Form 3508 (the long-form filing)? As discussed in our Anchin Alert dated , if the Borrower meets one of three criteria as provided on Form 3508 EZ Instructions, they are able to avoid calculating an FTE Reduction Quotient (as discussed below). However, Borrowers who file Form 3508 EZ by meeting the second set of requirements (checking the second box on page 1 of Form 3508EZ), are still required to calculate FTEs, but as of and as of the last day of their Covered Period.
The Small Business Administration (SBA) defines a Full-Time Equivalent employee [FTE] as “an employee who works 40 hours or more, on average, each week.” The hours installment loans Florida of employees who work less than 40 hours are calculated as proportions of a single FTE employee and aggregated. The calculation of an FTE is explained in more detail below.
- Covered Period
The Covered Period is either (1) the 24-week (168-day) period beginning on the PPP Loan Disbursement Date, or (2) if the Borrower received its PPP loan before , the Borrower may elect to use an 8-week (56-day) Covered Period. Borrowers using the 24-week Covered Period can file their loan application before the end of the 24-week period. In no event .
- Reference Period
The Reference Period for FTEs is either (i) to . The Borrower can choose which reference period is most beneficial to them (i.e., results in a lower FTE). Seasonal employers have a third period to choose from, which can be any consecutive 12-week period from .
How to Calculate FTEs
For filers of Form 3508, Borrowers must calculate average FTEs for both (i) the Covered Period, and (ii) the chosen Reference Period. The Borrower calculates an average FTE separately for each employee and then aggregates them for the Covered Period and also separately for the Reference Period.
To calculate the average FTE for each employee, Borrowers need to accumulate the total hours paid during the Covered Period (and chosen Reference Period) and divide the average number of hours paid per week during the relevant period by 40, and round to the nearest tenth. (e.g., If an employees average FTE was calculated to be 0.65 FTE, that amount would be rounded to 0.7 FTE). The maximum FTE for each employee is capped at 1.0 FTE (i.e., any employee working on average 40 or more hours will count as an FTE of 1.0).