The Paycheck Protection Program is designed to protect paychecks and keep people employed in a time when government-mandated restrictions have closed businesses or drastically reduced a business’s income. The act requires borrowers to maintain a certain number of employees to qualify for loan forgiveness. Thus, if you do not keep the same number of full-time equivalent workers during the 8-week period following the date you receive the loan that you had in the lookback period, the amount of the loan that can be forgiven will be affected.
1.What does the term full-time equivalent employee mean?
Many businesses use part-time workers. If you have multiple part-time employees, you can add them together to make a full-time equivalent employee.
For example, Business ABC has three employees. Employee A and Employee B both work part-time. Employee C works full-time. Because the hours of Employee A and Employee B added together equal a full-time employee, together they can be considered one full-time equivalent employee. Thus, Business ABC has two full-time equivalent employees.
2. How many hours do you need to qualify as a full-time equivalent employee?
Unfortunately, this is unclear. We suspect it is the number of hours your full-time employees must work. So, if your full-time employees have to work only 37.5 hours per week, then each full-time equivalent employee’s hours must add up to 37.5 hours. However, until you hear otherwise, we recommend 40 hours.
3. What is the lookback period to compare the number of employees for my business?
- Most businesses, including seasonal businesses, should calculate the average number of full-time equivalent employees between February 15, 2019 through June 30, 2019.
- New businesses that weren’t in business prior to July 1, 2019 should calculate the average number of full-time equivalent employees from January 1, 2020 through February 29, 2020.
4. I have fewer workers than I did during the look-back period. How does that affect my loan forgiveness?
Your loan forgiveness will be reduced according to your reduction of full-time equivalent employees. If you had 10 full-time equivalent employees during the look-back period but only 5 full-time equivalent employees in the 8 weeks following receiving the loan, only half of your loan is eligible for forgiveness.
If you have already laid off workers but your Paycheck Protection Program loan has been approved, we recommend you hire them back now to start on the same day that you receive the funds from the bank. If you cannot hire the same person back (or do not want to), hire someone else with the skills you need. The important thing is to have the same number of full-time equivalent workers, not how much you paid them.
5. I have kept my workers on the payroll, but they have nothing to do. I don’t want to pay people for not working. Can I defer the 8-week period for comparing the number of employees I have until after the government restrictions are lifted?
No. The 8-week comparison period begins on the date the loan proceeds are disbursed. For forgiveness purposes, you can pay your employees without requiring the employees to work. However, we recommend you use this time to prepare your business to come out stronger than before. Depending on the nature of your business, your employees may not be able to perform their usual jobs, but that doesn’t mean there is no work for them to do.
Remember: this is all about loan forgiveness. If you don’t care to have any of your loan forgiven, then don’t worry about the above. Look for our blog tomorrow: ideas on what your employees can do when they cannot perform their usual tasks.