How to Assess the ERTC in Relation to Size of Businesses

August 22, 2023
Dayes Law Firm

The Employee Retention Tax Credit offers small and medium-sized businesses a refundable payroll tax credit if they suffered financial losses during the pandemic but still paid wages to their staff. The program comes with numerous eligibility requirements, including company size and revenue limits.

Company Size Limitations With the ERTC

To qualify for the ERTC, your business must have suffered a decline in gross receipts or a full or partial closure during 2020 or 2021. After meeting this qualification, your business will fall into one of two categories: a small or large company. Small companies can claim different wages than large companies, so understanding the difference can help you maximize your ERTC claim. 

Small vs. Large Employers for the ERTC: Assessing the Difference

Small employers have fewer full-time employees than large employers in terms of their average staff in 2019. Your company size will dictate which wages you can or cannot claim in 2020 and 2021:

  • Small employers: As a small business or micro-entity, all of your paid wages will qualify for the ERTC. Whether your staff worked during the period or not, you can claim the wages you paid. 
  • Large employers: Large employers can only claim wages for payments made to employees who were not working or serving during the period. Only non-providing services count as qualified wages for large businesses. For example, if you paid an employee their 40-hour-per-week salary, though they only worked 10 hours during the period, your qualified wage for this employee would be 30 hours. 

How the Number of Full-Time Employees Influences Company Size for the ERTC Qualification Process

The number of full-time employees on your staff determines if your company will fall into the small or large-size category. The CARES Act determines your staffing number based on your average number of employees during 2019. The company size limits for small and large businesses depend on the year:

  • 2020: If you’re applying for a tax credit for 2020, the threshold is 100 employees. Companies with fewer than 100 employees in 2020 will qualify as small, while employers with greater than 100 workers will fall under the large business status. 
  • 2021: The threshold for 2021 increased to 500. As long as you had fewer than 500 employees on average in 2019, you can qualify as a small business. 

What Is a Full-Time Employee?

According to the Affordable Care Act, a full-time employee is one who works at least 30 hours per week or 130 hours per month. Businesses should not confuse this definition with full-time equivalent employees, as you only need to consider full-time employees. If you need help determining your number of full-time employees, feel free to reach out to our tax professionals at Dayes Law Firm. 

Averaging Your Full-Time Employees in 2019

You can average your full-time employees in 2019 by adding up your total full-time employees for the calendar year, then dividing that figure by 12. Your resulting figure will be the average number you can use to determine your business size status for the purpose of the ERTC.

Do You Need Help Calculating Your Credit?

Calculating your ERTC credit can feel overwhelmingly complex when considering company size limits and other qualifications. Whether you have questions or need support filing, we’re here to help. Call Dayes Law Firm in Phoenix, AZ, today at (800) 503-2000 for a free consultation with a professional ERTC attorney.