Do Employees Have to Be Full-Time for the ERTC?

August 17, 2023
Dayes Law Firm

If your business qualifies for the Employee Retention Tax Credit (ERTC), you could claim up to $26,000 per employee by filing an amended tax return. The rules pertaining to the ERTC have undergone some changes, and there are some complex nuances to be aware of before filing.

One of the questions fielded by the ERTC team at Dayes Law Firm is whether you can still receive a tax credit for part-time employees. Here is an overview and brief explanation. 

About the Employee Retention Tax Credit

As you are probably aware, the ERTC is part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act, which provided $2.2 trillion in stimulus funds to help individuals and businesses stay afloat during the pandemic.

Businesses were eligible for loans, including the Paycheck Protection Program (PPP), to encourage them to stay open and keep workers on staff. Another part of the CARES Act was the Employee Retention Tax Credit, which provides a tax credit on wages and health insurance costs paid on behalf of each employee that was kept on during 2020 and 2021. Unlike the PPP, the ERTC is a refund, and it doesn’t have to be repaid.

To qualify for the credit, a business must have experienced either of the following two scenarios: 

  1.  A drop in revenue of at least 50% in 2020 compared to 2019, and at least a 20% decline in 2021 compared to 2019.
     
  2. Alternatively, a business must have experienced a significant restriction in its operations due to the government mandate. 

There are other subtle nuances in the rule for startup businesses and other situations, but at its core, these are the basics. Once you determine that you’re eligible for the ERTC, the next step is determining which employees you can claim the credit for. 

Wages that Qualify for the ERTC 

The Employee Retention Tax Credit allows businesses to claim a percentage of wages and compensation paid, which includes anything that is subject to FICA taxes and certain health expenses.

Further, any PPP funds paid to wages that have been forgiven (or are slated for forgiveness) are not eligible, as this would constitute “double-dipping.”

Before determining the amount of the potential credit, employers must first tally up the number of full-time employees on staff during the relevant period. The rules of ERTC classify an employee as full-time when an employee logs 130 paid hours in a month, which equals 30 hours per week.

The reason figuring out this number is important is that there is a 100 full-time employee threshold that determines whether a business is a “large employer” or a “small employer,” and which wages qualify. The distinction is important because all wages are considered qualified for small employers, which can result in a more substantial credit. 

Specifically, small employers can claim all wages paid, whether the employee was working or inactive. Large employers, on the other hand, can only claim the tax credit for wages paid where the employee was not working. 

Part-Time Workers and ERTC 

Even though determining how wages qualify for ERTC requires a business to count full-time employees, the wages paid to employees with part-time hours are still eligible for the credit. 

Therefore, when you’re adding up the wages that are eligible for ERTC, you can count the wages paid to your part-time staff. 

Get the Maximum ERTC Available to Your Business 

For questions about your ERTC eligibility and how much you can qualify for, please feel free to contact Dayes Law Firm. We have helped businesses file for over $250 million in ERTC funds, and we have extensive experience in this area. For a no-cost, no-obligation consultation, call us at (866) 567-4510.