As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.

One of the biggest draws of the Paycheck Protection Program is that, if the funds are used for approved expenses, the loans are 100 percent forgivable.

But as funds continue to be dispersed, many small business owners have questions about how to qualify for loan forgiveness—particularly when it comes to calculating full-time equivalency for their employees.

Let’s take a look at the requirements for PPP loan forgiveness—and, more specifically, the different FTE calculations you can use to meet the necessary forgiveness requirements:

PPP loan forgiveness requirements

Before we jump into FTE calculations, let’s take a broader look at the forgiveness requirements for Paycheck Protection Program loans.

There are a number of requirements small businesses must meet in order to qualify for PPP loan forgiveness, including:

  • The PPP loan amount was used to cover approved expenses. Forgivable expenses include payroll costs (including sick leave, retirement plans, and employee health insurance), utility payments, business rent, and mortgage obligations.
  • The PPP loan proceeds were used to cover expenses during the 24-week covered period following loan origination. Only expenses that businesses incur during the 24-week time frame after they receive their PPP funds are eligible for forgiveness. (It was originally an 8-week period that was covered, but the Paycheck Protection Program Flexibility Act, which was signed into law in early June, extended the covered period to 24 weeks). Also, certain businesses that have irregular payroll expenses or payroll periods/schedules (for example, seasonal employers or businesses that mostly employ part-time workers with varied hours each pay period), may qualify for an Alternative Payroll Covered Period, which would begin the first payday/payroll date following loan disbursement.
  • 60 percent of loan funds were used for payroll costs. To qualify for the total loan forgiveness amount, at least 60 percent of the total Paycheck Protection Program loan must be used to cover eligible payroll costs, while the other 40 percent can be used to cover eligible non-payroll costs, like utilities, lease payments, or mortgage interest payments. (While the ratio to qualify for full loan forgiveness was originally 75 percent payroll costs/25 percent approved non-payroll costs, the Paycheck Protection Program Flexibility Act changed the ratio to 60/40 to allow small business owners more flexibility in how they spent their PPP funds.)

Another big part of qualifying for loan forgiveness has to do with maintaining employee headcount. Business will only qualify for full PPP loan forgiveness if they:

  • Maintain their number of full-time equivalent employees (FTEs); and
  • Maintain pre-coronavirus employee compensation for their workers

If your company reduced your number of full-time equivalent employees and/or passed on a salary/hourly wage reduction to your team, your amount of loan forgiveness will be reduced proportionately to the reduction in headcount or employee’s pay (total salary and/or hourly wages).

There are some exceptions to these loan forgiveness reductions. If you had to reduce FTE employee levels during the COVID-19 pandemic, under the FTE Reduction Safe Harbor, you have until December, 31 2020 to restore your workforce and rehire your laid-off or furloughed employees before facing reduced loan forgiveness. (Previously, employers had until June 30, 2020 to restore their workforce, but the Paycheck Protection Program Flexibility Act, which was signed into law in early June, extended that date through the end of the year.) If you extend an employment offer to an employee during the covered period and they reject that offer, you will not face an FTE reduction and your loan forgiveness amount will not be reduced (as long as the offer didn’t include an annual salary or wage reduction or a reduction in the number of hours the employee was working prior to being furloughed or laid off).

The Paycheck Protection Program Flexibility Act also added two additional FTE reduction exceptions that allow employers to qualify for full loan forgiveness even if they’re unable to restore their workforce by the December deadline. If your business:

  • Can document in good faith that you are unable to return to your standard level of business activity due to COVID-19 safety protocols; or
  • Is unable to rehire former employees and is unable to find qualified workers to fill open positions,

It will not impact the forgiveness amount you’re eligible for; as long as you’re in full compliance with the rest of the PPP loan forgiveness requirements, can still qualify for the full loan forgiveness amount.

The two ways to calculate FTE to meet forgiveness requirements

Now that you know how FTEs play into loan forgiveness, let’s jump into how to calculate FTE to meet the Small Business Administration’s forgiveness requirements.

There are two different loan forgiveness calculations you can use to calculate full-time equivalency for your employees:

Average FTE

The average FTE calculation divides the average number of hours average number of hours paid to an employee each week by 40 and rounds to the nearest tenth:

Total number of hours paid / 40 = FTE

Under the SBA’s interim final rule, a full-time employee is defined as an employee who works 40 or more hours per week. As such, FTE is calculated on a scale of 1, with 1 being the equivalent of 40 hours per week. So, a full-time employee that works and is paid for 40 hours per week would have an FTE of 1 (40 hours paid each week / 40 = 1). It’s important to keep in mind that FTE recognition caps out at zero—so, if you have salaried employees that work more than 40 hours per week, they would still be counted as 1 FTE.

If you have any employees who work hourly and/or part-time, their FTE may be less than zero. So, for example, if you have an hourly employee who works 15 hours per week, using this loan forgiveness calculation, their FTE would be 0.4 (15 hours paid per week / 40 = 0.375, round up to 0.4).

Standard FTE

If you don’t want to calculate the FTE for each individual employee, the SBA also allows businesses to assign an FTE of 1 to the total number of employees that work 40 hours or more per week and an FTE of 0.5 to the total number employees that work less than 40 hours per week:

40 or more hours paid each week = 1 FTE

Less than 40 hours per week = 0.5 FTE

Which FTE calculation is the best fit for your business?

Currently, the SBA allows businesses to use either calculation on their PPP loan forgiveness application, as long as that calculation remains consistent. So, the question is, which FTE calculation is the best fit for your business?

And the answer is—it depends.

Ideally, you want your FTEs to be as high as possible, because a) higher FTEs allows you to qualify for more PPP funds, and b) higher FTEs will show the SBA that you were able to maintain headcount during the covered period—which will help you qualify for full loan forgiveness. So, when calculating FTEs, you want to use the calculation that is going to give you the higher FTE count.

Which calculation will give you the higher FTE count will depend on the number of hours your part-time or hourly employees work.

Let’s take a look at two different scenarios.

Let’s say your small business employs six staff members with the following hours per week: 40, 20, 50, 10, 8, and 10.

If you used the Average FTE calculation (total number of hours / 40 = FTE), your FTEs would look like this:

40 hours / 40 = 1 FTE

20 hours / 40 = 0.5 FTE

50 hours / 40 = 1 FTE (capped)

10 hours / 40 = 0.25 FTE

8 hours / 40 = 0.2 FTE

10 hours / 40 = 0.25 FTE

TOTAL FTE = 3.2 (rounded to the nearest tenth)

But if you used the standard FTE calculation (employees who work 40 hours or more = 1 FTE, employees who work less than 40 hours = 0.5 FTE), your FTEs would look like this:

40 hours = 1 FTE

20 hours / 40 = 0.5 FTE

50 hours = 1 FTE

10 hours = 0.5 FTE

8 hours = 0.5 FTE

10 hours = 0.5 FTE

TOTAL FTE = 4

In this scenario, using the standard FTE calculation would increase your FTEs by 0.6, making it the better calculation.

But that’s not always the case. Let’s say your small business employs six staff members with the following hours per week: 40, 25, 50, 30, 30, 25.

If you used the average FTE calculation, your FTEs would look like this:

40 hours / 40 = 1 FTE

25 hours / 40 = 0.6 FTE

50 hours / 40 = 1 FTE (capped)

30 hours / 40 = 0.8 FTE

30 hours / 40 = 0.8 FTE

25 hours / 40 = 0.6 FTE

TOTAL FTE = 4.8

But if you used the standard FTE calculation, your FTEs would look like this:

40 hours = 1 FTE

25 hours / 40 = 0.5 FTE

50 hours = 1 FTE

30 hours = 0.5 FTE

30 hours = 0.5 FTE

25 hours = 0.5 FTE

TOTAL FTE = 4

In this scenario, the average FTE calculation yields higher FTEs than the standard FTE calculation.

Bottom line? The best FTE calculation for your business will depend on your employee headcount and the number of hours each employee works. Before you fill out your PPP loan forgiveness application, make sure you understand the differences between both calculations, and how they impact total FTEs—and run the numbers to see which makes more sense for business.

How to get instant access to financing

Find more blogs

Find out if you're pre-qualified in seconds

Your information must be verified and accurate in order to qualify.