Questions continue to arise concerning the Employee Retention Credit (ERC). Because of the multiple amendments to the CARES Act that created the ERC, many employers have avoided filing for this tax credit.

One question frequently brought to our attention is, “I had part-time employees on my payroll during the height of the pandemic. Are their wages eligible to be counted towards the Employee Retention Credit?”

Similar questions have also been raised by companies with employees compensated by tips and employers with union workers.

Let’s address how the ERC applies to all three of these different types of employees. But first, a brief review of the ERC.

A Capsule Summary of the Employee Retention Credit

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The law is designed to reduce the damage to the U.S. economy caused by the pandemic. It includes many provisions, such as including payments to qualifying families and individuals, expanded unemployment insurance benefits, grants and loans to small businesses, emergency financial assistance to employers in specific industries significantly impacted by COVID-19, and more.

The CARES Act includes an employee retention credit that assists eligible employers with meeting their payroll obligations by providing them a refundable payroll tax credit (not a loan) based on qualified wages and healthcare paid to employees. Employers can claim up to $5,000 per employee for 2020. For the first three quarters of 2021, the credit can be up to $7,000 per employee per quarter.

A business is eligible for the ERC if it was forced to fully or partially suspend operations or reduce business hours because of a government COVID-19 order.

The ERC and Part-Time, Union, and Tipped Employees

Let’s now answer the questions concerning the ERC and these three classifications of employees:

Part-time employees

Unfortunately, the ERC credit does not apply to part-time employees, only those defined as full-time employees. Per the Internal Revenue Service (IRS), for the purposes of the ERC, a full-time employee is defined as one that works at least 30 hours per week in any calendar month or 130 total hours in a month.

Union employees

Employers of all sizes, including tax-exempt organizations like 501(c)(5) labor organizations, may be eligible for the employee retention credit. Generally, for any Union with 100 or fewer full-time employees in 2019, all wages paid to employees qualify for the credit. In addition, to be eligible for the credit, the employer must have carried on a trade or business during 2020 and satisfy either or both of the following tests:

  • Business operations are fully or partially suspended due to orders from a governmental entity limiting commerce, travel, or group meetings due to COVID-19; or 
  • Gross receipts declined by more than 50% compared to the same quarter in the previous year.

Tipped employees

For restaurants accessing the ERC, the IRS has confirmed that tips are eligible for wages:

  1. Businesses can claim tips paid by customers in excess of $20 per month as eligible wages for ERC. 
  2. Businesses can receive both the ERC and the section 45B credit for the same wages.

Find Out If You Qualify for the ERC

Don’t delay determining if you qualify for the ERC because you have some unanswered questions. You may unnecessarily be leaving a substantial amount of money on the table.

Bottom Line Concepts can help you make sense of the ERC. We’ve helped over 14,000 businesses determine if they’re qualified to receive the ERC and enroll in the program successfully. 

Contact us today and schedule your 15-minute introductory call with one of our dedicated experts, who will outline the steps you need to take to maximize the claim for your business.