PPP loan forgiveness calculation for FTE is based on 40 hr work week. Our company has a 35 hr work week. Do we base 1 FTE on a 40 hr week?

You will need to use 40 hours based on the PPP Loan forgiveness application, but since you are comparing apples to apples (35 hours in the covered period and 35 hours in the base period) your FTE may not be negatively affected.