How to Calculate Full-Time Equivalents for PPP Loan Forgiveness

The Paycheck Protection Program (PPP) was a lifeline for millions of businesses during the COVID-19 pandemic. As companies navigate loan forgiveness, one critical factor is calculating Full-Time Equivalents (FTEs). Understanding FTEs is essential because it directly impacts how much of your PPP loan can be forgiven.

Why FTEs Matter for PPP Forgiveness

The Small Business Administration (SBA) designed PPP forgiveness rules to encourage employers to retain or rehire employees. If your workforce shrinks, your forgiveness amount may be reduced—unless you meet certain exceptions.

FTEs measure employee workload in standardized terms. One FTE equals 40 hours per week. For example:
- A full-time employee working 40 hours = 1 FTE
- Two part-time employees working 20 hours each = 1 FTE

The Two FTE Calculation Methods

The SBA allows two methods to calculate FTEs for PPP forgiveness:

1. Simplified Method

• Count any employee working 40+ hours per week as 1 FTE.
• Count employees working fewer than 40 hours as 0.5 FTE.
• This method is faster but may not reflect actual hours worked.

2. Detailed Method

• Calculate each employee’s average weekly hours.
• Divide by 40 and round to the nearest tenth.
• Example: An employee averaging 30 hours/week = 0.75 FTE.
• This method is more precise but requires detailed payroll records.

How FTE Reductions Affect Forgiveness

If your average FTEs during the covered period are lower than during your chosen reference period, your forgiveness may be reduced. The reference periods are:
- Option 1: February 15, 2019 – June 30, 2019
- Option 2: January 1, 2020 – February 29, 2020
- Option 3 (for seasonal employers): Any 12-week period between May 1, 2019 – September 15, 2019

Exceptions to FTE Reduction Penalties

You may avoid forgiveness reductions if:
- You restored FTEs by December 31, 2020 (for most loans).
- You can document an inability to rehire employees or return to pre-pandemic business levels due to COVID-19 restrictions.
- Employees refused rehire offers in writing.

Step-by-Step FTE Calculation

Let’s break down the process:

Step 1: Choose Your Calculation Method

Decide between the simplified or detailed method based on your payroll records.

Step 2: Determine Your Reference Period FTEs

Calculate average FTEs during your selected reference period.

Step 3: Calculate Covered Period FTEs

Add up FTEs for each pay period during your covered period (8 or 24 weeks).

Step 4: Compare and Adjust

Divide your covered period FTEs by your reference period FTEs. If the result is less than 1, your forgiveness may be reduced proportionally.

Common Mistakes to Avoid

• Miscounting seasonal workers – Ensure you use the correct reference period.
• Ignoring employee turnover – Document any layoffs or refusals to return.
• Overlooking state restrictions – Some businesses couldn’t fully operate due to local mandates.

The Future of PPP and Workforce Management

As economic recovery continues, businesses must stay compliant while maximizing forgiveness. Proper FTE tracking ensures you don’t leave money on the table.

Additional Tips for Maximizing Forgiveness

• Keep detailed payroll records.
• Consult a CPA or PPP specialist if unsure.
• Monitor SBA updates for changing rules.

By mastering FTE calculations, you position your business for full PPP loan forgiveness and long-term financial stability.