Spending your PPP funds on the right things is straightforward enough. But things get more complicated when you don’t keep your headcount and employee pay levels the same.

**Headcount reduction**

Let’s say you have three full-time employees and they each made $3,000 per month, meaning your PPP loan amount was $22,500 (3000 x 3 x 2.5). You had to lay them off in February due to COVID-19.

If you only hire back two out of the three employees, your workforce is 67% (two thirds) of your original headcount.

Over the 24 weeks of the PPP period, you spend $36,000 on your employees, more than your PPP loan amount. You claim the full $22,500 of your loan for forgiveness.If we assume you do not qualify for any rehiring exemptions, when it comes to calculating your forgivable amount, because your workforce is smaller, your forgivable amount will be multiplied by 0.67. You would be able to have $15,075 forgiven.

**Pay reduction**

Let’s say you have three employees and they each made $3,000 per month, meaning your PPP loan amount was $22,500 (3000 x 3 x 2.5). You had to lay them off in February due to COVID-19. You hire back all three of your employees, but you only pay them $2,000 a month.

Over the 24 weeks of the PPP period, you spend $36,000 on your employees, more than your PPP loan amount. You claim the full $22,500 of your loan for forgiveness.

When it comes to calculating your forgivable amount, we look at each employee’s individual compensation. The 75% minimum salary is $2,250, so you’re paying each person $250 less than that each month. The difference is scaled up to a 24-week period, ($250 * 6), so $1,500 would be deducted from the forgivable amount. Repeating that for each employee would result in a total of $18,000 forgiven.