July 23, 2020
We are a licensed childcare program which has been required by various government agencies to severely limit our enrollment. We have maintained our entire staff at their full rate of pay from when we were ordered closed through June 30. To determine if we qualify for the “EZ” loan forgiveness form, what is our look back period to determine if we are maintaining employees at 75% of their wages, and when does the active evaluation period end? Are we able to reduce staff hours more than 25% at this point without jeopardizing loan forgiveness?
Posted by Armanino Financial Advisory Team
The test you are referring to is the second criterion in the instructions for using Form 3508EZ. There, you must meet two sub-tests to qualify: 1) you did not reduce rate of pay by more than 25% during the Covered Period compared to the Q1 2020 average; and 2) you did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of your Covered Period.
The “active evaluation period” in both sub-tests ends with the final day of your Covered Period. After this date, you are permitted to take whatever steps necessary for your business needs without impacting loan forgiveness. Keep in mind, though, that there is a difference between “rate of pay” and “hours worked” — you seemed to combine those two concepts in your final question. Any reduction in hours means an FTE Reduction if it occurs during the Covered Period, and there is no 25% grace amount available on this reduction factor like there is on the Salary Reduction Factor.