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How Do You Qualify for Employee Retention Credit? & How Do You Become an Eligible Employer?

The pandemic left many businesses and their employees in financial difficulty due to restrictions imposed by the government, meaning that they were unable to fulfill their normal opening hours or services.

As a result, the government placed in the Employee Return Credit scheme which allowed employers to claim credits back on wages based on the amount that they’d lost throughout that time. This scheme has been amended using various Acts over the previous 2 years, expanding to certain other types of organizations as the pandemic progressed and moving from 50% to 70% of an employee’s wage is credited back depending on the wage bracket and employment sector.

How Do You Qualify for Employee Retention Credit?

The ERC is available to most businesses that suffered a loss in gross profit over the course of the past 2 years due to restrictions imposed by the government. To qualify and claim the tax credits can be a lengthy process, and it is recommended in many cases that businesses take on a specialist company to carry out the employee retention credit application

There are specific criteria in place that your business needs to qualify for the credit:

  • Your business must have suffered a significant loss of earnings or profit since the beginning of the pandemic and be able to prove this using documentation or accounts. A ‘significant loss’ would be making less than 80% of your usual earnings displayed in the years 2019 and 2018.

This could exclude certain businesses if they switched operations to online. This might mean that, as a result of the pandemic, significant changes needed to be made to the business in order to continue operations. However, the company was still able to make a similar profit to previous years despite this, meaning they wouldn’t qualify.

  • The business would also need to show that their working hours were affected, meaning that they may have had to pay employees a full wage for working less hours in order to support their financial situation.

Key workers within the healthcare and educational sectors may therefore be exempt, if they continued to perform their normal duties, meaning that the employees’ working hours remained static.

How Do You Become An Eligible Employer?

An eligible employer would have to have been suspended in part or suffered a loss in profits but continued to function between the months of March 2020 and December 2020. You must employ other people and be a registered business, meaning that people who are self-employed but hiring people on a contractual or ad-hoc basis would not qualify.

For those who weren’t trading in 2019, but began their business in 2020, the 2020 accounts may be used to claim a loss of earnings from January 2021 to June 2021. However, these businesses will not be eligible for any credit within the year 2020 as there is not sufficient evidence to prove that the loss is due to government restrictions.

The ERC is not due to any government or state-run organizations within 2021.

How Much Credit is Due?

If your business is eligible for ERC you could receive up to 50% of each employee’s earnings quarterly for the 2020 year from March-December, as long as their quarterly salary doesn’t exceed $10,000. If it does exceed this limit, then you will receive the $10,000 credit against them.

For the 2021 year, this amount could increase to 70% of their quarterly earnings – again, up to a cap of $10,000.

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