Many essential businesses were forced to reduce their operations and lay off staff during covid-19 in 2020 and 2021. This has put immense pressure on employers who are struggling to keep their businesses afloat while still providing for their employees.
The question arises: can essential businesses obtain Employee Retention Credit (ERC) from the government? The answer is yes if you meet certain requirements which will be covered next.
We will discuss mandated modifications, government mandates affecting suppliers, vendor supply chain disruption, partial shutdowns, and reduced working hours. By understanding these factors, employers can make informed decisions about whether ERC is right for them.
Mandated Modifications
Mandated modifications have caused businesses to make big changes, from limited capacities and occupancy, to contactless pick-up and drop-off, all the way to social-distancing enforcement and enhanced cleaning measures. These changes can be costly for businesses in terms of time and resources as they need to transition their operations.
There is an additional cost associated with training staff members in these new protocols. This can lead to employee turnover which can further impact the financial stability of a business.
As such, some essential businesses are looking towards government programs like the Employee Retention Credit (ERC) to help cover these costs and incentivize employee retention during this difficult period. The ERC is a refundable tax credit available for employers who retain their employees between March 13th 2020 and December 31st 2021.
It applies to eligible wages paid by an employer during that period, including health insurance premiums paid on behalf of employees.
For essential businesses struggling with the cost of mandated modifications or at risk of losing valuable employees due to lack of funding for necessary expenses – such as additional hours needed due COVID-19 related operational adjustments – the ERC presents a possible solution that could significantly reduce financial strain while helping maintain their workforce during this challenging time.
Nominal Portion of Business Operations Affected
If you’ve had to suspend more than a “nominal portion”of your non-essential operations due to governmental order, you could qualify for ERC. The IRS defines this as less than 10% of the respective totals compared with the same information from comparable 2019 quarters. Examples include medical facilities that couldn’t perform elective surgeries, manufacturers that had to close their plants but not their warehouses, and restaurants or grocery stores subject to curfews.
To determine if a business is eligible, they need to compare 2020 and 2021 calendar quarter revenue and total hours worked against similar data from 2019. If they meet the 10% threshold, then the business segment can be considered more than nominal and may qualify for ERCs in the shutdown quarter.
Knowing this exception could result in significant savings for businesses whose necessary modifications led them to become eligible for ERCs.
Government Mandates
Forced to adapt to government mandates, businesses can benefit from the Employee Retention Credit. The IRS has considered that, even if a business is open and its revenues increase, these government-mandated changes still have an influence on how they interact with customers and operate their business.
Therefore, there are exemptions that allow businesses to use these credits and help mitigate losses due to reduced capacity or occupancy regulations. The Employee Retention Credit covers expenses such as wages paid before September 30th of 2021.
This credit applies for employers whose gross receipts decreased by more than 20% compared to the same quarter in 2019 or 2020; or those who were forced to suspend operations due to government orders related to COVID-19 during either all or part of the quarter.
The IRS also offers additional guidance regarding the application process for this credit which includes eligibility requirements depending on the size of your business in terms of employees and annual revenue.
It’s important that you consult with a tax professional familiar with this type of credit in order to be sure you are eligible and understand how it works so you can make the most out of this opportunity.
Government Orders Affecting Suppliers
Government orders can affect your suppliers, making it difficult to keep your business running as usual. If the inability to obtain critical goods or materials from suppliers requires you to suspend operations, you may be eligible for the Employee Retention Credit.
This applies even if your business is considered an essential trade or business in the jurisdiction where it operates. For example, if a supplier of raw materials is required to shut down its operations due to a governmental order and you are unable to procure these raw materials from an alternate supplier, then your operations would be affected and you could qualify for the credit.
It’s important that you understand how this might impact your business so that you can make informed decisions about how best to proceed in such circumstances. You should also take into account any other available relief options when considering whether or not this credit applies to your situation.
Vendor Supply Chain Disruption
Vendor supply chain disruption can disrupt your operations and cause you to partially suspend certain business activities. This can have a significant impact on essential businesses, as they may be unable to acquire necessary products or services from their vendors in order to continue operating.
It’s important for these businesses to understand the distinction between normal reduced customer demand and a partial suspension of operations due to vendor supply chain disruptions.
According to FAQ 32 from the IRS guidance, experiencing a reduced volume of business operations simply because customers are required to stay at home under governmental orders wouldn’t be viewed as partially suspending an essential business. However, demonstrating that an essential business has specific types of business activities that are affected by a vendor supply chain disruption would show that the essential business has been partially suspended.
The CARES Act provides employee retention credits in such cases, so it’s important for employers affected by this type of disruption to understand how they can access these funds.
Other Effects on Essential Businesses
COVID-19 has had a ripple effect on essential operations, and understanding these effects can help you access the resources needed to stay in business. The direct impact of COVID-19 on businesses is relatively small; however, its indirect impacts related to government orders have been more severe.
To identify how these impacts are connected to government orders, it’s important to review the material segments of the business and ask what effect COVID-19 has had on it. Analyzing the connection between the government order and the COVID-19 impact can help determine if there is a partial suspension of operations that could qualify as an eligible employer for employee retention credit.
It’s also important to consider other external factors that may not be directly linked to government orders but still qualify as an eligible employer for employee retention credit. For example, if customer demand drops significantly due to restrictions imposed by the pandemic or economic downturns, this could affect essential businesses just as much as any other kind of disruption caused by a government order. Similarly, supply chain disruptions caused by international vendors may also have an equivalent effect on essential businesses and should be taken into account when evaluating eligibility for employee retention credits.
Legal considerations such as labor laws or health regulations must also be taken into account while assessing eligibility for employee retention credit programs. In particular, employers should assess their compliance with local laws regarding sick leave policies or safety protocols that may have been implemented in response to COVID-19 guidelines from governing bodies.
All of these elements need to be considered when evaluating whether a business qualifies as an eligible employer under current guidelines for employee retention credits.
Partial Shutdown
If your operations have been partially suspended due to a governmental order, you could still qualify for the employee retention credit. The government considers any facility that is closed or restricted because of an order to be considered partially suspended. This includes businesses such as restaurants, bars, and retail stores which are required to close certain services like sit-down dining, but can still provide carry-out or delivery options.
If the customers of an essential business have been affected by government orders that limit their operations in some way, this can also count as a partial suspension of the business’s activities. In order to qualify for employee retention credits based on a partial suspension of operations, employers must be able to demonstrate that their operations were impeded by a government order.
Businesses should keep records of the orders and any other relevant documents related to the suspension. They should also document how it has impacted their employees and what actions they took in response to the change in operations. Employers may also qualify for employee retention credits if they have experienced a decline in gross receipts compared with the same quarter in 2019 due to COVID-19 circumstances beyond their control.
To determine eligibility for these types of credits employers should review IRS guidance on employee retention credit qualifications and requirements.
Reduced Working Hours
You may be wondering if essential businesses can get employee retention credit if they’ve had to reduce their operating hours due to a governmental order. The answer is yes.
If an employer’s operations are limited by a governmental order, the business is considered to have partially suspended its operations and thus qualifies for the Employee Retention Credit.
The amount of credit available depends on the number of full-time employees employed in 2019 and how much wages were paid during that time period. Employers who experienced a partial shutdown are eligible for a refundable payroll tax credit equal to 70% of their qualified wages up to $7,000 per employee for any quarter in 2020 when there was a suspension or reduction of hours due to orders from an appropriate governmental authority limiting commerce, travel or group meetings (for commercial, social, religious or other purposes).
Before submitting an application, employers should review all legal requirements to ensure they’re properly applying for the Employee Retention Credit.
Conclusion
You need to know if essential businesses can get employee retention credit. The answer is yes, as long as they’ve been affected by mandated modifications, government mandates, orders affecting suppliers, vendor supply chain disruption, partial shutdowns, and reduced working hours.
To be eligible for employee retention credits, essential businesses must provide proof of their qualified wages and the amount of credit to which they’re entitled. This will help them stay afloat during difficult times while also ensuring that their employees are taken care of financially.