The FTE calculation was put in as a way to ensure that PPP loans given were used to maintain the same number of employees, as well as the same amount of pay as prior to COVID-19.
The U.S. Treasury defines an FTE (full time equivalent) as any employee who works 40 hours per week or more (one employee working 60 hours/week = 1 FTE; two employees each working 25 hours/week = 1.25 FTE). A condition to receiving full PPP loan forgiveness is that you maintained the same number of FTEs, as well as their payroll, during your PPP period as you had before COVID-19.
If you are a business owner with no employees, or are considered self-employed, you will not have to worry about calculating FTE. Instead, your PPP loan forgiveness is based on 2019 net profit (not payroll).
Simplified Method vs. Actual Hours
There are two methods to calculate your FTE — either by using the actual hours worked or a simplified approach of 1.0 for FTE employees and .5 for part time employees. We explain how to use the simplified method below; however, if you prefer to calculate by actual hours, you can find an excellent explanation here.
How to Calculate Your FTE Using The Simplified Method
A) Determine Your Time Periods: There are two time periods you can consider when calculating FTEs:
- The Covered Period, which ranges from 8 to 24 weeks beginning on the date of your loan disbursement
- Alternative Payroll Covered Period, which ranges from 8 to 24 weeks beginning on the first day of the payroll period beginning after the date of your loan disbursement.
B) Determine Your Reference Period: This period is used to compare the Covered Period to. You can choose one of the following:
- Option 1–2/15/19 to 6/30/19
- Option 2–1/1/20 to 2/29/20
C) Collect your list of employees that count as FTE (40+ hours per week). Note that:
- Each employee counts as one (1) FTE.
- Even if your employees collected overtime during your PPP period, they cannot count as more than one (1) FTE
- Owner employees should not be included as part of the FTE calculation. Instead, they are covered in other payroll calculations.
D) Collect your list of employees that count as part time (less than 40 hours per week). Note that:
- Part time employees count as .5 FTE
- For example, if you had 5 employees who worked an average of 20 hours per week, they would count as 2.5 FTEs
We’ve prepared a worksheet for the simplified method that includes both the Covered Period and the Alternative Payroll Covered Period, which you can find here: https://docs.google.com/spreadsheets/d/1jyhaqR7EZX5QTLOfZZoTKrnhmlGnuGhxrxeI1EpLzeA/edit?usp=sharing
If you have further questions, or need assistance when calculating FTEs for purposes of PPP forgiveness, Monit recommends that you get in touch with your CPA or tax advisor.