Can the ERTC Be Utilized to Encourage Entrepreneurship?

November 22, 2023
Dayes Law Firm

Even though the Employee Retention Tax Credit (ERTC) is not specifically designed to encourage employees to undertake entrepreneurial endeavors, employers could potentially leverage ERTC benefits to support employees with these aspirations. 

This article explores how businesses can utilize ERTC to encourage employee entrepreneurship. 

About the ERTC 

The rules regarding ERTC benefits have changed since its inception, so it can be a bit of a challenge to determine if you are currently eligible. As a reminder, eligible employers can claim up to $26,000 per employee for qualified wages paid if either of the following situations apply: 

  1. Your business experienced a decline in gross receipts of 50% in 2020 and 20% in 20201 compared to the same period in 2019. Eligibility is determined quarterly, so you may be able to claim one, multiple, or all eight quarters.
     
  2. Your business experienced a full or partial suspension of operations due to a government mandate. 

ERTC funds are provided as a refundable tax credit subsidy from payroll taxes already paid. The goal of the program was to incentivize small businesses to keep employees on staff despite the resulting economic hardship of the pandemic. 

It’s also worth noting that new ERTC rules have also allowed employers to claim ERTC funds even if they received Payroll Protection Program Loans (PPP Loans). 

How Businesses Can Utilize ERTC to Encourage Employee Entrepreneurship 

ERTC funds are not available for individuals, but employers can use these funds to help employees begin working toward entrepreneurial goals, at least indirectly. 

The following strategies are allowable under ERTC rules and can help employees: 

  • Maintain job security: Many entrepreneurs begin their journey while employed. They pursue their dreams as a side hustle and begin building a business without having to leave the security of a steady paycheck.

    In many cases, businesses kept their employees on payroll, even when they were closed. In theory, this time could have been utilized to allow employees to explore their entrepreneurial side without missing out on their salaries.
     
  • Provide flexible work arrangements: Many companies allowed their employees to work remotely during the pandemic and have continued either fully remote or hybrid work environments ever since. These options give employees more flexibility to pursue other passions outside of the office.
     
  • Offer professional development: Businesses can choose how to deploy the funds received from the ERTC. One option is to re-invest in employees by encouraging (and reimbursing) them for professional development or continuing education courses.
     
  • Create a culture of innovation: Businesses that encourage creativity and out-of-the-box thinking are often in a better position to compete and stay relevant in an ever-changing competitive landscape. With the cash flow provided by the ERTC, employers can promote and incentivize this culture.
     
  • Incentivize entrepreneurial initiatives: If you have staffers who are naturally entrepreneurial or innovative, you can use ERTC funds to provide financial rewards or recognition for taking actions or developing inventions that benefit your company.
     
  • Provide mentorship: While it can feel like having entrepreneurial employees is risky, the opposite may be true. That entrepreneurial spirit can benefit your organization because you’ll have people with drive who are not afraid to take calculated risks. You can encourage this behavior by providing hungry employees with additional guidance or connecting them with other entrepreneurs within your company or industry.   

Contact the Experienced Tax Attorneys at Dayes Law Firm Today 

Also referred to as the Employee Retention Credit (ERC), ERTC benefits are a big boon for small businesses. Though its original aim is not specifically to encourage employees to go out and become entrepreneurs, it can provide businesses interested in fostering this spirit with the tools to do so. To learn how to claim maximum ERTC funds, contact Dayes Law Firm for a free consultation.