Understanding how the number of Full Time Equivalents (FTEs) working at your office impacts the PPP loan forgiveness calculation is essential for anyone looking to max out the portion of this SBA loan that will ultimately be forgiven.  According to the SBA rules available at https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf, the first three steps are straightforward.

  1. Calculate the number of FTEs for the two allowable reference periods of 2/15/19-6/30/19 and 1/1/20-2/29/20 and select the lower number of FTEs.
  2. Calculate the number of FTEs during the Covered Period or Alternative Payroll Covered Period.
  3. If line 2 is less than line 1, then dividend line 2 by line 1. Otherwise, use 1.0. (Or enter 1.0 if the FTE Safe Harbor described below is met.)

You would then apply that percentage from Step 3 above to the total allowable payroll costs and nonpayroll costs to come up with the portion of the PPP loan to be forgiven.  Pretty easy calculation that can yield pretty lousy results for those practices that were closed for a portion of the Covered Period and don’t meet end up meeting the FTE Safe Harbor.

FTE Safe Harbor

For practice owners that saw their staff FTEs decrease after 2/15, there is a critical Safe Harbor to meet that completely eliminates the FTE penalty described above.  Simply staff up your practice by 6/30/20 so your FTEs that week equal or exceed the FTEs from the payroll run including 2/15/20, and the FTE forgiveness ratio comes in at 1.0 allowing the full amount you spent on allowable payroll costs, rent and utilities during the Covered Period to be forgiven.

Two Ways to Calculate FTEs:

The SBA rules provide for two ways to calculate FTEs:

  • For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0.


  • A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.

We have prepared a very user friendly Excel Workbook to help you figure out how much of your PPP loan will be forgiven that includes a tab showing the FTEs being calculated using both methods. You can download that spreadsheet at: https://www.schwartzaccountants.com/wp-content/uploads/2020/05/PPP-Forgiveness-Calculation.xlsx

Phantom FTEs:

Please note that even if you have staff members that don’t come back because they don’t have access to childcare, have health issues making a return to work too risky, or are collecting too much money from unemployment each week to even consider returning to work right now, the SBA still allows you to include the FTEs of those employees as follows:

FTE Reduction Exceptions: Indicate the FTE of (1) any positions for which the Borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee; and (2) any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours. In all of these cases, include these FTEs on this line only if the position was not filled by a new employee. Any FTE reductions in these cases do not reduce the Borrower’s loan forgiveness.

FTEs Matter

Definitely plan ahead and take the necessary steps to staff up to pre-2/15/20 levels by 6/30.  Doing so will ensure that you maximize the portion of your PPP loan that will be forgiven.