Should you wait 8 or 24 weeks to apply for PPP Loan forgiveness? This depends on when you reach full forgiveness. This presentation will help guide you.

1. PPP Loan
Forgiveness
When should I
apply for
forgiveness?
Part 2
FTE Reduction

2. Reference
period
In addition to the salary wage
reduction, there is also a full-time
equivalency reduction i.e. a reduction
for reducing your employee's hours
However, in the case of the FTE
reduction calculation, you get to choose
your reference period.
The reference period with the least FTE
will help you most.

3. Reference
period:
Date
choices
(i) February 15, 2019 to June 30, 2019;
(ii) January 1, 2020 to February 29,
2020; or
(iii) in the case of seasonal employers,
either of the preceding periods or any
consecutive 12-week period between
May 1, 2019 and September 15, 2019.

4. Schedule A
– The FTE reduction is calculated on the schedule A

5. Safe Harbor
– Safe harbor eliminates the need to reduce your loan forgiveness
– When a safe harbor applies then you do not have to reduce your loan forgiveness
amount

6. Safe Harbor contd.
You are exempted from the reduction in loan forgiveness based on a reduction in
FTE employees if:
(a) You reduced your FTE employee levels in the period beginning February 15,
2020, and ending April 26, 2020; and
(b) then restored your FTE employee levels by December 31, 2020 to the FTE
employee levels in the pay period that includes February 15, 2020.

7. Safe harbor cont.
– Or, you are able to document that you were unable to operate between
February 15, 2020, and the end of the Covered Period at the same level of
business activity as before February 15, 2020, due to compliance with
requirements established or guidance issued between March 1, 2020 and
December 31, 2020, by governing authorities

8. Safe Harbor Example 1
– FTE between 2/15/2020 and April 2020 was 1 ( 40 hours)
– FTE inclusive of 2/15/2020 was .75 (30 hours)
– Since the average hours worked between 2/15/2020 and 4/26/2020 was more
than the average hours worked as of 2/15/2020, the safe harbor does not apply

9. Safe Harbor Example 2
– FTE between 2/15/2020 and April 2020 was .75 ( 30 hours)
– FTE inclusive of 2/15/2020 was 1 (40 hours)
– Since the hours worked between 2/15/2020 and 4/26/2020 was less than the
hours worked as of 2/15/2020, you will need to test to see if salary was restored
no later than December 31, 2020
– FTE as of the application submission date and no later than December 31,2020
was 1.
– Safe harbor applies and no salary reduction is required.

10. Example
Now let us see how this works with the bigger
picture.
We will revisit our example from part 1

11. Example
Adam Smith who had one employee
received a $20,000 PPP Loan.
Covered period: 8 weeks from 3/18/2020
to 5/12/2020
Total payroll expenses/ forgivable loan
was $18,760 after wage reduction
limitation

12. Now let us see what happens when
there is also a FTE reduction
– FTE between 2/15/2020 and April 2020 was 1 ( 40 hours)
– FTE inclusive of 2/15/2020 was .75 (30 hours)
– Since the hours worked between 2/15/2020 and 4/26/2020 was more than the
hours worked as of 2/15/2020, the safe harbor does not apply

13. FTE during reference period
– Reference periods
– Average FTE between 2/15/2019 and 6/30/2019 was 1(40 hours)
– Average FTE between 1/1/2020 and 2/29/2020 was 1 (40 hours)
– Average FTE for chosen reference period will be lesser of the 2
– Since there are both 1, we choose 1
– Average FTE during the forgiveness window was .5 (20 hours)

14. FTE Reduction Quotient
– Next we compute the FTE reduction quotient
– This is computed by dividing average FTE during the forgiveness window by the average
FTE in the chosen reference period
– This is .5/1 = .5
– The forgivable loan amount is further reduced by the FTE reduction quotient
– This is 18,760 *.05 = $9,380
– The forgivable loan has now been halved to $9,380
– This is 47% of the PPP loan amount
– Which is less than the 60% of the payroll requirement to be eligible for full forgiveness
– Even if you had extra expenses it would not allow you get to full forgiveness

15. Recommendation
– Wait for the 24 weeks

16. Apply or
not?
This workbook will make it easier
to run your numbers.
It is worth checking to see if you
are eligible for full forgiveness
within the 8 or 24 week window.

17. https://lifestylecpa.com/product/ppp-loan-forgiveness-in-less-than-1-hour/