The SBA has again updated their PPP loan FAQs to add FAQ 36. This FAQ, issued Sunday, April 26, provides guidance on how to count employees to determine if the employer is an eligible borrower under the CARES Act. We thought it was pretty clear that the 500 employee maximum in the CARES Act for PPP loan eligibility purposes means a potential borrower must count all employees, whether full time, part time or something else.
Not surprisingly, the CARES Act uses a different standard to measure employees for loan forgiveness. To determine if a borrower is eligible for loan forgiveness, the borrower must count “full time equivalent employees.” Unfortunately, the SBA did not provide guidance for the meaning of a “full-time equivalent employee,” including the hours used to make this determination. Therefore, while the FAQ provides clarity for eligibility, questions remain on how to count part time employees for purposes of loan forgiveness: Is an employee whose schedule is determined based on the needs of the business, but who is only paid when working, considered an FTE? Does the answer depend on the number of hours they worked the week of forgiveness? Average over the entire eight week period? What if they worked 30 hours per week on average? 10 hours per week on average?
We still don’t know how to count FTEs. Is it 40 hours per week as contemplated by the Fair Labor Standards Act? Or will the SBA rely on the IRS’s 30+ hours per week approach for counting FTEs in the Affordable Care Act (ACA) context for counting FTEs.1 Unfortunately, the FAQs do not address the time period during which the test should be applied nor the number of hours used to determine full-time status.
1 The ACA requires employers to count the number of full-time employees (those scheduled to work 30 hours per week or more) and then add “equivalents” by taking the aggregate number of hours worked by any other employees and dividing it by 120. For ACA purposes, the IRS is measuring the number of FTEs for the prior year and arrives at the number by performing the calculation on a monthly basis and taking the average for the prior year.
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