ERTC and Labor Law Compliance: Addressing Employee Rights

September 8, 2023
Dayes Law Firm

The COVID-19 pandemic took a heavy toll on businesses throughout 2020 and 2021. Many businesses were forced to lay off workers, but a few fortunate ones continued to pay employees even if they weren’t actively working for the company.

If you fall into the latter category, you might qualify for the Employee Retention Tax Credit (ERTC), also referred to as the Employee Retention Credit (ERC).

Whether you’re a for-profit business or a tax-exempt organization, it’s important to understand the ERTC and labor law compliance, as well as how one affects the other.

What Does the ERTC Mean for Your Business?

If you think you don’t qualify for the ERTC, you aren’t alone. Many business owners assume they’re not eligible because they took out a PPP loan or didn’t experience a big drop in gross receipts.

The good news is that you can claim the credit even if you took a PPP loan, and you don’t necessarily need to meet the gross receipts test to qualify.

If you’re eligible, you could claim:

  • Up to $5,000 for full-time employees in 2020
  • Up to $7,000 per full-time employee per quarter for 2021

How Labor Law Violations Could Prevent You From Claiming the ERTC

At first glance, the ERTC and labor law compliance don’t exactly seem related. However, violating labor laws and employee rights may make you ineligible for the ERTC, even if you broke the law by accident.

For instance, consider these scenarios that could prevent you from claiming the credit:

  • Your workers had been complaining about safety issues for a while, but you failed to fix them. As a result, an employee had an accident that forced them to leave work for a few months. You didn’t pay them during this time, which means you may be unable to claim the full credit for that employee’s wages.
  • Your city issued a curfew or told you to shut down your dining room, but you didn’t comply. You may be unable to claim that your business was affected by government closures.
  • You employed minors younger than your state’s minimum employment age.
  • You didn’t request I-9 documentation from employees.
  • You paid employees below minimum wage. This affects you because the IRS bases the credit amount on how much you paid to employees.

Does Your Business Qualify?

Your business can qualify for the ERTC in one of two ways:

  • You had to close your doors, either partially or fully, because of a government order.
  • Your business had a big drop in gross receipts (at least 20% compared to the same quarter of the prior year for 2021 and a drop of at least 50% for 2020).

A government-ordered closure doesn’t necessarily mean you closed your business down entirely. You could also qualify if:

  • You had to limit how many people you allowed in your waiting room
  • You had to shut down your dining room and limit guests to outdoor seating
  • One of your key vendors shut down

How To Claim the Credit

Claiming the ERTC is fairly simple. To do so, just fill out Form 941-X, Adjusted Employer’s Federal Tax Return or Claim for Refund.

Contact Dayes Law Firm To Learn More About This Valuable Credit

At Dayes Law Firm, we know that understanding the ERTC and labor law compliance can be tricky for some business owners. If you suspect your business may have violated labor laws, reach out to us for advice. We’ll go over your situation and tell you whether you qualify.

To speak with an attorney, call us at 866-567-4510 now.