How Do High-Turnover Industries Handle ERTC Challenges?
If you’re attempting to claim the Employee Retention Tax Credit (ERTC), you might be wondering how employee turnover affects your eligibility. While you can still claim the credit, there will be additional challenges in recordkeeping, especially since many employees don’t start or stop employment on dates that correspond with ERTC eligibility.
This article explores the challenges that employers in high-turnover industries face when claiming ERTC funds and how to overcome them.
ERTC and Employee Turnover
As a reminder, the ERTC is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The ERTC is a refundable tax credit that small businesses could claim if they met one of the following two criteria:
- A decline in gross receipts in 2020 and 2021 compared to the same quarters in 2019
- A full or partial suspension of operations due to COVID-related government orders
The overarching goal of the ERTC was to encourage small businesses to retain their employees despite operational shutdowns and declining revenue. Eligibility is determined on a quarterly basis, and a business can claim up to $26,000 in credits per employee for the wages paid in 2020 and 2021.
However, at first glance, it can be confusing to determine how to handle an employee who left or was fired in a matter unrelated to the pandemic. Fortunately, even in high-turnover industries like hospitality, retail, and food services, employers can still claim the credit. They just might not get the full amount if the employee was not on the payroll for all eight quarters.
Claiming ERTC for Employees Who Didn’t Work the Full Quarter
In any industry, let alone classically high-turnover industries, employees can start and leave on any day of the year, not just at the start or end of the quarter. As a result, when you are submitting your ERTC application, it’s likely that the bulk of your employees who commenced or ended their employment with you have partial quarters to consider.
The good news is that even if an employee did not work the entire quarter, you could still claim the credit for those employee wages that were actually paid for any quarter in which you were eligible for the ERTC.
Further, the calculations can be prorated. For example, if your operations were only suspended for one month in a quarter, you can claim the wages paid to employees during that month.
How to Ensure You Receive the Full ERTC Refund for Which You Are Eligible
There’s no question that turnover can be expensive for any business. In addition to lost productivity and an increase in errors and customer service issues due to a revolving door of new employees, there are also recruiting, onboarding, and training costs to consider.
Tips for reducing employee turnover are an entirely different topic, so we’ll stick to how businesses experiencing this phenomenon can get their share of ERTC funds.
- Keep careful records: Maintain up-to-date records of your employees’ start and end dates, hours worked, and wages paid. You’ll need this information for each eligible employee’s wages to claim ERTC funds.
- Take advantage of the look-back period: While there have been multiple iterations of the rules regarding ERTC, currently, employers have three years from the date of filing a previous tax return to claim ERTC funds. This means you can delve into past wages paid and collect the refund for employees who have since left your employment.
Find Out How Much Money You Can Claim From the ERTC
If you meet basic ERTC eligibility requirements, you will likely be able to claim this tax credit, even if you have high employee turnover.