Article
Sustain your restaurant operations with Employee Retention Credit
April 13, 2021 · Authored by Wade R. Huseth, Todd C. Bernhardt
Over the past year, many government stimulus programs were enacted to help businesses and individuals combat the financial impact of the COVID-19 pandemic. Restaurants have been one of the hardest hit industry segments and should explore any and all avenues possible to subsidize efforts to keep the doors open and employees on the payroll.
One of the subsidies enacted within the Coronavirus Aid, Relief, and Economic Security (CARES) Act back in March 2020 was the Employee Retention Credit (ERC). It was overshadowed by the Paycheck Protection Program (PPP) because the law at the time stated if your company received a PPP loan, it was not eligible to also claim the ERC. Therefore, many companies disregarded the ERC as the PPP loan was a more advantageous program.
In December 2020 this dynamic changed. Under the Consolidated Appropriations Act, taxpayers are now able to receive a PPP loan and claim the ERC. What’s more, this change was made retroactive to all of 2020. This change of law, along with an easing of the eligibility requirements, opens the door for many restaurants to claim this valuable credit.
How is the credit determined in 2020?
The credit is equal to 50% of qualified wages determined on an employee-by-employee basis and must be calculated separately for each quarter the company is eligible during 2020. The maximum wages allowed in 2020 for all quarters for each employee is $10,000, thus allowing for a maximum credit of $5,000 per employee. Eligible wages generally include payroll and employer paid health plan expenses. A company may not, however, claim the credit on wages that were paid using a PPP loan that was forgiven or wages that were used to determine other payroll tax credits such as WOTC and FFCRA credits. There are many detailed considerations and calculations, including interplay with PPP funds, which need to be made. Restaurants should consult with their tax advisor for assistance to maximize their ERC.
Example
A single location QSR was forced by government order to limit in-store dining to 25% of capacity from March 15, 2020 through December 31, 2020. It was determined that this government order resulted in more than a nominal portion of the business being affected. The restaurant therefore can claim the ERC on wages paid from March 15, 2020 through December 31, 2020.
