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Federal Register / Vol. 86, No. 23 / Friday, February 5, 2021 / Rules and Regulations
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reference period, the total eligible expenses available for forgiveness is reduced proportionally by the percentage reduction in FTE employees.
For example, if a borrower had 10.0 FTE
employees during the reference period and this declined to 8.0 FTE employees during the covered period, the percentage of FTE employees declined by 20 percent and thus only 80 percent of otherwise eligible expenses are available for forgiveness.
Borrowers are exempted from the loan forgiveness reduction arising from a proportional reduction in FTE
employees during the covered period if the borrower is able to document in good faith the following: 1 An inability to rehire individuals who were employees of the borrower on February 15, 2020; and 2 an inability to hire similarly qualified individuals for unfilled positions on or before 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.54 Borrowers are required to inform the applicable state unemployment insurance office of any employees rejected rehire offer within 30 days of the employees rejection of the offer. The documents that borrowers should maintain to show compliance with this exemption include, but are not limited to, the written offer to rehire an individual, a written record of the offers rejection, and a written record of efforts to hire a similarly qualified individual.
Borrowers are also exempted from the loan forgiveness reduction arising from a reduction in the number of FTE
employees during the covered period if the borrower is able to document in good faith an inability to return to the same level of business activity as the borrower was operating at before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020
and 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 55 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention CDC, or the Occupational Safety and Health Administration related to the maintenance of standards for sanitation, social distancing, or any other worker or 54 This text was originally published at 85 FR
38304, subsection III.1.f. June 26, 2020 and has been modified to conform to section 311 of the Economic Aid Act.
55 This text was originally published at 85 FR
38304, subsection III.1.f. June 26, 2020 and has been modified to conform to section 311 the Economic Aid Act.

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customer safety requirement related to COVID19 COVID Requirements or Guidance. Specifically, borrowers that can certify that they have documented in good faith that their reduction in business activity during the covered period stems directly or indirectly from compliance with such COVID
Requirements or Guidance are exempt from any reduction in their forgiveness amount stemming from a reduction in FTE employees during the covered period. Such documentation must include copies of applicable COVID
Requirements or Guidance for each business location and relevant borrower financial records.
Example: A PPP borrower is in the business of selling beauty products both online and at its physical store. During the covered period, the local government where the borrowers store is located orders all non-essential businesses, including the borrowers business, to shut down their stores, based in part on COVID19 guidance issued by the CDC in March 2020.
Because the borrowers business activity during the covered period was reduced compared to its activity before February 15, 2020 due to compliance with COVID
Requirements or Guidance, the borrower satisfies the exemption and will not have its forgiveness amount reduced because of a reduction in FTEs during the covered period, if the borrower in good faith maintains records regarding the reduction in business activity and the local governments shutdown orders that reference a COVID Requirement or Guidance as described above.
c. What does full-time equivalent employee mean? 56
Full-time equivalent employee means an employee who works 40 hours or more, on average, each week. The hours of employees who work less than 40
hours are calculated as proportions of a single full-time equivalent employee and aggregated, as explained further below in subsection IV.5.d.
d. How should a borrower calculate its number of FTE employees? 57
Borrowers seeking forgiveness must document their average number of FTE
employees during the covered period and their selected reference period. If applicable, a borrower must perform this calculation for both its First Draw PPP Loan and Second Draw PPP Loan.
56 This subsection was originally published at 85
FR 33004, subsection III.5.c. June 1, 2020 and has been modified for readability.
57 This subsection was originally published at 85
FR 33004, subsection III.5.d. June 1, 2020 and has been modified to conform to section 311 of the Economic Aid Act and for readability.

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For purposes of this calculation, borrowers must divide the average number of hours paid for each employee per week by 40, capping this quotient at 1.0. For example, an employee who was paid 48 hours per week during the covered period would be considered to be an FTE employee of 1.0.
For employees who were paid for less than 40 hours per week, borrowers may choose to calculate the full-time equivalency in one of two ways. First, the borrower may calculate the average number of hours a part-time employee was paid per week during the covered period. For example, if an employee was paid for 30 hours per week on average during the covered period, the employee could be considered to be an FTE
employee of 0.75. Similarly, if an employee was paid for ten hours per week on average during the covered period, the employee could be considered to be an FTE employee of 0.25. Second, for administrative convenience, borrowers may elect to use a full-time equivalency of 0.5 for each part-time employee. The Administrator recognizes that not all borrowers maintain hours-worked data, and has decided to afford such borrowers this flexibility in calculating the full-time equivalency of their part-time employees.
Borrowers may select only one of these two methods, and must apply that method consistently to all of their parttime employees for the covered period and the selected reference period. In either case, the borrower shall provide the aggregate total of FTE employees for both the selected reference period and the covered period by adding together all of the employee-level FTE employee calculations. The borrower must then divide the average FTE employees during the covered period by the average FTE employees during the selected reference period, resulting in the reduction quotient.
e. What effect does a borrowers reduction in employees salary or wages have on the loan forgiveness amount? 58
Under section 7Ad3 of the Small Business Act, a reduction in an employees salary or wages in excess of 25 percent will generally result in a reduction in the loan forgiveness amount, unless an exception applies.
Specifically, for each new employee in 2020 and 2021, as well as each existing employee who was not paid more than the annualized equivalent of $100,000
58 This subsection was originally published at 85
FR 33004, subsection III.5.e. June 1, 2020 and has been modified to conform to section 306 of the Economic Aid Act and for readability.

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