How does my headcount affect my PPP loan forgiveness amount?

Learn how to calculate your headcount reductions so you can determine if they affect your PPP loan forgiveness amount.

Note: On January 11, 2021, the SBA and Treasury reopened the Paycheck Protection Program. The SBA may issue additional forgiveness-related guidance. Please refer to the latest guidance from SBA and Treasury to confirm current program rules.

In general, your loan forgiveness amount may be reduced if the average weekly number of full-time equivalent (FTE) employees you employ during your 8-week or 24-week Loan Forgiveness Covered Period (or, if applicable, your alternative payroll covered period) is less than the average weekly number of FTE employees between one of the following reference periods:

• February 15, 2019 and June 30, 2019, or
• January 1, 2020 and February 29, 2020

Seasonal employers may choose either of the above reference periods or any consecutive 12-week period between May 1, 2019 and September 15, 2019.

Determine what headcount reductions to include

There are a few important things to consider when reviewing your headcount reductions. For example, these types of headcount reductions will generally not reduce your loan forgiveness amount:

• Reductions related to an employee who rejected a good-faith, written offer to rehire him or her.
• Reductions related to an employee who was fired for cause, voluntarily resigned, or voluntary requested and received a reduction in hours.
• Reductions related to employees whose principal residence is outside of the United States.
• Reductions made between February 15, 2020 and April 26, 2020 that are reversed by December 31, 2020.

Further, your loan forgiveness amount will not be reduced based on headcount reductions if your business was unable to operate between February 15, 2020 and the end of your Loan Forgiveness Covered Period at the same level as before February 1, 2020, due to compliance with certain federal requirements or guidance issued between March 1, 2020 and December 31, 2020 related to maintaining standards of sanitation, social distancing, or other work or customer safety requirements related to COVID-19.

Determine the change in average number of FTE employees

Before you can calculate the average of your headcount reductions, you need to determine which Loan Forgiveness Covered Period and Reference Period are appropriate for your business.

Loan Forgiveness Covered Period

Your Loan Forgiveness Covered Period generally begins on the date you received your PPP funds, or if you received your PPP funds on more than one date, the first date on which you received PPP funds.

If you received your PPP funds on or after June 5, 2020, your Loan Forgiveness Covered Period is 24 weeks.  If you received your PPP funds before June 5, 2020, you can choose to use either an 8-week or 24-week Loan Forgiveness Covered Period.  For headcount reduction purposes, use the same 8-week or 24-week period you used to calculate your payroll costs eligible for loan forgiveness.

Alternative Payroll Covered Period 

Solely for the purpose of calculating payroll (and certain required reductions, including this one related to your FTE employees), borrowers with biweekly or more frequent payroll may choose an “alternative payroll covered period” that aligns with your payroll cycle. The alternative payroll covered period begins on the first day of the first pay period following receipt of your PPP funds.

Reference period 

Choose the reference time period that makes sense for your business:

• Beginning on February 15, 2019 and ending on June 30, 2019
• Beginning on January 1, 2020 and ending on February 29, 2020, or

Seasonal employers may choose to use either of the two previous periods or any consecutive 12-week period between May 1, 2019 and September 15, 2019.

Part 2: Calculate your average FTE headcount for both the loan forgiveness Covered Period and Reference Period

Now that you have determined your loan forgiveness Covered Period and Reference Period, you can now calculate weekly FTE employee headcount averages for both periods. The SBA provides two options to determine your headcount averages. Pick the one that works best for you. For purposes of this calculation, identify employees employed by you at any point during your loan forgiveness Covered Period (or if applicable, your Alternative Payroll Covered Period) and reference period whose principal place of residence is in the United States.

Standard method

1. For each employee, determine the average number of hours paid per week during the time period you’re calculating, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0.
2. Add the calculated numbers for all of your employees to determine the average number of FTEs for your loan forgiveness Covered Period.

Simplified method

1. For each employee, if they worked 40 hours or more per week during the time period you're calculating, then assign that employee a value of 1.0. If they worked fewer than 40 hours per week, then assign them a value of 0.5.
2. Add up the assigned numbers for all your employees to determine the average number of FTEs in your loan forgiveness Covered Period.

Regulations and guidance from the SBA and the U.S. Department of the Treasury on the PPP are evolving rapidly and the above information may be outdated. Please refer to the latest guidance from SBA and Treasury to confirm current program rules and how they apply to your particular situation.

The funding described is made available to businesses located in the United States of America and are not available in other locations.

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