Safe Harbor Rules for Reduction in FTEs under the Paycheck Protection Program Flexibility Act of 2020

As part of the recent amendments to PPP loan forgiveness provisions, additional changes were made on the percentages applied to eligible costs that could be forgiven and exceptions on full-time equivalent (“FTE”) employees that are included in calculating forgiveness.

The Updated Loan Forgiveness Application contains a box to check for FTE Reduction Safe Harbor #1 or FTE Reduction Safe Harbor #2

FTE Reduction Safe Harbor #1 applies if 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 the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19. (To apply, such requirements or guidance must be issued between March 1, 2020, and December 31, 2020.)

FTE Reduction Safe Harbor #2 applies when a borrower is exempt from the reduction of loan forgiveness based on FTE employees if:

(1) there was a reduction in average FTE employee levels during February 15, 2020 to April 26, 2020; and

(2) the borrower restores its FTE employee levels as of the earlier of December 31, 2020 and the date the application is submitted to its FTE employee levels in the pay period that included February 15, 2020.

There are also FTE Reduction Exceptions that will not affect the borrower’s loan forgiveness.  FTE Reduction Exceptions will be granted under the following circumstances:

(1) positions for which the borrower made a good-faith, written offer to restore any reduction in hours, at the same salary or wages, during the Covered Period or the Alternative Covered Period and the employee rejected the offer

(2) any employees who were fired for cause; voluntarily resigned; or voluntarily requested and received a reduction of their hours

(3) positions for which the borrower made a good-faith, written offer to rehire an employee who was employed on Feb. 15, 2020, and was unable to hire similarly qualified employees for unfilled positions on or before Dec. 31, 2020

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