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The PPP forgiveness calculation is coming! The most complex calculations involve determining the full-time equivalent (FTE) count during the loan’s covered period and comparing it to the taxpayer’s choice of 2 different base periods. Any reduction in FTE from the covered period to the base period reduces the amount of the loan qualified for forgiveness. FTE is defined by the SBA as 40 hours per week.

For example, if the employee FTE count during the covered period (8 or 24 weeks from the date the loan proceeds were deposited) was 8 FTE and the employee count for the chosen base period was 10, then the employee count went down by 20% ((10-8)/10). There are several special exceptions for laid off employees and alternate covered periods, but you get the idea.

Here is our non-simple 7 step way to calculate FTE.

__Step 1-FTE for covered period:__

**On an employee by employee basis add up their individual**__PAID__hours for the covered period (8 weeks or 24 weeks).**Divide that total by the number of weeks in the covered period (8 or 24) and that answer equals average hours per week.****Divide average hours per week from #2 by 40 (not greater than 1), rounding to nearest tenth.****That total is FTE during the covered period.**

__Step 2: FTE for base period:__

**Calculate FTE in the same manner as in Step 1 for 2 for the taxpayer’s different base periods and choose the one with the lower FTE:****FTE during the period 2/15/19-6/30/19, or****FTE during the period 1/1/20-2/29/20.****Seasonal employers may use any consecutive 12 weeks 5/1/19-9/15/19.****Subtract #4 (FTE for covered period) from the lowest calculation in #5 (FTE for base period) to determine the amount of change,****Divide #6 (amount of change) by the lowest calculation in #5 to determine the percentage of decline. This equals the FTE forgiveness penalty.**

Note that a safe harbor exists where the employer restores FTE to the base period number by 12/31/2020, then the FTE penalty does not apply. Similarly, there is a simplified method where the employer just uses 1.0 FTE for full timers and .5 FTE for part-timers.

__Example:__

Lois Lane’s video food blog employed 12 full timers at the beginning of the year. Last year she had 10 full timers all year. (Hint: her choice of a base FTE should always be the lower of the 2 FTE base period choices).

Once the virus scare hit, her blog viewer count dropped, her restaurant visits stopped and she laid off a number of employees. She pays twice a month, so she did not qualify for the alternate covered period rule. Her PPP loan of $100,000 was deposited to her account on May 1, 2020.

During the 8-week covered period, she added up the hours for all employees and completed the following 7 steps:

**On an employee by employee basis add up their individual**__PAID__hours for the covered period (8 weeks or 24 weeks). Answer:__2,400__**Divide that total by the number of weeks in the covered period and that answer equals average hours per week. Answer**__8__,__2,400/8=300__**Divide average hours per week from #2 by 40 (not greater than 1), rounding to nearest tenth. Answer:**__300/40=7.5__**That total is FTE during the covered period. Answer**__7.5__**Calculate FTE in the same manner as in Step 1 for 2 different base periods and choose the one with the lower FTE:****FTE during the period 2/15/19-6/30/19: Answer**__12__**FTE during the period 1/1/20-2/29/20: Answer**__10__**Subtract #4 (FTE for covered period) from the lowest calculation in #5 (FTE for base period) to determine the amount of change: Answer**__(10-7.5)=2.5__**Divide #6 (amount of change) by the lowest calculation in #5 to determine the percentage of decline. This equals the FTE forgiveness penalty. Answer **__2.5/10=25%__