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Federal Register / Vol. 86, No. 23 / Friday, February 5, 2021 / Rules and Regulations
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in any pay period in 2019, the borrower must reduce the total forgiveness amount by the total dollar amount of the salary or wage reductions that are in excess of 25 percent of base salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period the reference period, subject to exceptions for borrowers who restore reduced wages or salaries see g.
below. This reduction calculation is performed on a per employee basis, not in the aggregate. Additionally, this reduction is performed based on the covered period and reference period applicable to the First Draw Loan or Second Draw Loan.
Example: A borrower is using a 24week covered period. This borrower reduced a full-time employees weekly salary from $1,000 per week during the reference period to $700 per week during the covered period. The employee continued to work on a fulltime basis during the covered period, with an FTE of 1.0. In this case, the first $250 25 percent of $1,000 is exempted from the loan forgiveness reduction. The borrower seeking forgiveness would list $1,200 as the salary/hourly wage reduction for that employee the extra $50 weekly reduction multiplied by 24
weeks.59
Example: A borrower has elected to use an eight-week covered period. This borrower reduced a full-time employees weekly salary from $1,000 per week during the reference period to $700 per week during the covered period. The employee continued to work on a fulltime basis during the covered period, with an FTE of 1.0. In this case, the first $250 25 percent of $1,000 is exempted from the loan forgiveness reduction. The borrower seeking forgiveness would list $400 as the salary/hourly wage reduction for that employee the extra $50 weekly reduction multiplied by eight weeks.

59 This subsection previously provided that a borrower must account for the salary reduction for the full 24-week covered period if the borrower applies for forgiveness before the end of the covered period. 85 FR 38304, 38308 June 26, 2020. This text has been removed because section 306 of the Economic Aid Act allows the borrower to select a covered period between 8 and 24 weeks and there is no need to apply for forgiveness before the end of the covered period.

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f. How should borrowers seeking loan forgiveness account for the reduction based on a reduction in the number of employees section 7Ad2 relative to the reduction relating to salary and wages section 7Ad3? 60
To ensure that borrowers are not doubly penalized, the salary/wage reduction applies only to the portion of the decline in employee salary and wages that is not attributable to the FTE
reduction.
Example: An hourly wage employee had been working 40 hours per week during the borrower selected reference period FTE employee of 1.0 and the borrower reduced the employees hours to 20 hours per week during the covered period FTE employee of 0.5. There was no change to the employees hourly wage during the covered period.
Because the hourly wage did not change, the reduction in the employees total wages is entirely attributable to the FTE employee reduction and the borrower is not required to conduct a salary/wage reduction calculation for that employee.
g. If a borrower restores reductions made to employee salaries and wages or FTE employees, can the borrower avoid a reduction in its loan forgiveness amount? 61
Yes. Section 7Ad5 of the Small Business Act provides that if certain employee salaries and wages were reduced between February 15, 2020 and April 26, 2020 the safe harbor period but the borrower eliminates those reductions by December 31, 2020 or, for a PPP loan made on or after December 27, 2020, by the last day of the loans covered period, the borrower is exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in salaries and wages under section 7Ad3 of the Small Business Act. Similarly, if a borrower eliminates any reductions in FTE employees occurring during the safe harbor period by December 31, 2020 or, for a PPP loan made on or after December 27, 2020, by last day of the loans covered period, the borrower is exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in FTE employees.62
60 This subsection was originally published at 85
FR 33004, subsection III.5.e. June 1, 2020 and has been modified for readability.
61 This subsection was originally published at 85
FR 33004, subsection III.5.g. June 1, 2020 and has been modified to conform to section 311 of the Economic Aid Act.
62 In light of the flexibility the Small Business Act provides to borrowers with respect to their selection of the reference time period for any potential
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This provision implements section 7Ad5 of the Small Business Act, which gives borrowers an opportunity to cure reductions in FTEs, salary/wage reductions in excess of 25 percent, or both, using the applicable methodology set forth in section 7Ad5. The Small Business Act provides that the reduction in FTEs or the reduction in salary/hourly wages must be eliminated not later than December 31, 2020 or, for a PPP loan made on or after December 27, 2020, not later than the last day of the loans covered period. This does not change or affect the requirement that at least 60 percent of the loan forgiveness amount must be attributable to payroll costs.
h. Will a borrowers loan forgiveness amount be reduced if an employee is fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction? 63
No. When an employee of the borrower is fired for cause, voluntarily resigns, or voluntarily requests a reduced schedule during the covered period FTE reduction event, the borrower may count such employee at the same full-time equivalency level before the FTE reduction event when calculating the section 7Ad2 FTE
employee reduction penalty. Borrowers that avail themselves of this de minimis exemption shall maintain records demonstrating that each such employee was fired for cause, voluntarily resigned, or voluntarily requested a schedule reduction. The borrower shall provide such documentation upon request.
i. Is a borrower with a loan of $50,000
or less exempt from any reductions to the loan forgiveness amount? 64
Yes. A borrower with a loan of $50,000 or less, other than any borrower reduction in loan forgiveness, and the statutory authority for SBA and the Treasury to grant de minimis exemptions from this requirement, if the borrower meets the requirements for the FTE
reduction safe harbor, it will not be subject to any loan forgiveness reduction based on a reduction in FTE employees.
63 This subsection was originally published at 85
FR 33004, subsection III.5.h. June 1, 2020 and has been modified to conform to section 304 of the Economic Aid Act and for readability.
64 This subsection was originally published at 85
FR 66214, subsection III.1.b. Oct. 19, 2020 and has been modified to conform to sections 304 and 307
the Economic Aid Act and for readability. As described further below in subsection 6.a and 6.b, borrowers with loans up to $150,000 may use SBA
Form 3508S. However, only borrowers with loans of $50,000 or less, other than any borrower that together with its affiliates received First Draw Loans totaling $2 million or more or Second Draw Loans totaling $2 million or more, are exempt from any reductions to the loan forgiveness amount.
Accordingly, the exemptions in this subsection are
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