Forgiveness is based on two parameters:
- Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
- Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
So, your FTE counts during the 8 week period needs to be the same as your monthly average in 2019, or a portion of your loan will not be forgivable (payroll cost * current FTE average/2019 FTE average)
Also, if you reduce pay from the payroll calculations you used in 2019, you will have to reduce the forgivable amount.
Also, you can spend up to 25% of the loan amount towards acceptable items outside of payroll (rent, utilities, etc.) and it will still be forgivable. Any more that that, and they will make you deduct that portion from the forgivable amount.
So, as an example: In 2019, I have 10 employees and they all make $125,000 (this is make believe). For loan calculations, I've capped all of them down to $100k, or $8333.33/month. My annual payroll was $15M, but for purposes of the loan, capping my annual acceptable payroll costs gives me $12M, or $1M average monthly payroll, with an average of 10 FTE monthly. My qualifies loan amount would be $2.5M.
Fast forward to April 6th when i get approved and get my money. Today, I have 8 people on staff that all make $125,000. My monthly payroll is actually $1M. Over 8 weeks I'll spend $2M paying my staff. When I apply for forgiveness, I'll have all the records showing that I spent the money on payroll (or even rent or utilities, etc.). They will say that due to reduced headcount from the 2019 average, my forgivable amount will be $2M ($1M payroll cost * 8 current FTE/10 2019 FTE) * 2.5 = $2M of the loan is forgivable because I reduced my staff by 20%, therefore 20% of the loan is owed.
The thinking is that you didn't need that money in the first place because you only needed $2M of it to cover your current payroll vs. what you needed back in 2019 (which you used to calculate the loan).