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How do I calculate salary/hourly wage reductions?

If you reduced annual salary or hourly wages of employees during the Covered Period compared to the most recent full quarter before the Covered Period, you may need to reduce your overall requested loan forgiveness amount. 

Note: borrowers with loans $50,000 and under do not need to incorporate salary/hourly wage reductions into their overall requested loan forgiveness amount, unless they - together with affiliates, if applicable - received First Draw PPP Loans of $2 million or more or Second Draw PPP Loans of $2 million or more.

First, remember you will not be doubly penalized if you had reductions in both the number of employees and in employees’ wages. Additionally, you do not need to account for any salary/hourly waged reductions of specific employees if:

To calculate salary/hourly waged reductions for remaining employees who did experience a salary/hourly wage reduction over 25% and do not meet the safe harbor, follow these steps:

  • Step 1: Determine the employee's average annual salary or hourly wage during the most recent full quarter before the Covered Period. Multiply this amount by 0.75.
  • Step 2: Determine the employee's average annual salary or hourly wage during Covered Period. Subtract this amount from the resulting value of Step 1.
  • Step 3: If the employee is an hourly worker, compute the total dollar amount of the reduction that exceeds 25% as follows. If the employee is a salaried worker, skip to Step 4.
    • 3a. Determine the average number of hours worked per week during the most recent full quarter before the Covered Period.
    • 3b. Multiply the "Step 2" resulting amount by the amount entered in "Step 3a." Multiply this amount by the number of weeks in the Covered Period (a whole number between 8 and 24 – most likely 24). The resulting value is this employee's wage reduction amount.
  • Step 4: If the employee is a salaried worker, compute the total dollar amount of the reduction that exceeds 25% as follows:
    • 6a. Multiply the "Step 2" resulting amount by the number of weeks in the Covered Period (a whole number between 8 and 24 – most likely 24).
    • 6b. Divide this amount by 52. The resulting value is this employee's salary reduction amount
  • Step 5: Follow steps 1-4 for each employees who experienced a salary/hourly wage reduction over 25% and did not meet the safe harbor. Add together each employee's resulting value to get your total salary/hourly wage reduction amount. You will reduce your overall requested forgiveness amount by this value.

Some examples to show how a borrower might calculate their salary/hourly wage reductions:

  • Example: A borrower is using a 24-week covered period. This borrower reduced a fulltime employee’s 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 full-time 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).
  • Example: A borrower has elected to use an eight-week covered period. This borrower reduced a full-time employee’s 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 full-time 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).