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Employee Retention Credit (ERC) is a refundable payroll credit that businesses or employers can claim on qualified wages. It also comes with certain health plan coverage expenses for the employees.
ERC is a part of the Coronavirus Aid, Relief, and Economic Security Act (CARES) and functions as a business relief providing time coverage to employers.
So, even if employees cannot work during the covered period because of the coronavirus outbreak, employers can retain them.
Following is all you need to know about the ERC and its extension!
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Different Acts and Their Impacts
– Coronavirus Aid, Relief, and Economic Security Act – 2020
As per the Coronavirus Aid, Relief, and Economic Security Act, eligible employers can annually claim a credit against 50% of qualified wages up to $10,000 paid per employee from March 13, 2020, to December 31, 2020. The same applies to borrowers who took a loan under Paycheck Protection Program (PPP).
– Consolidated Appropriations Act – 2021
Under this Act, eligible employers and PPP recipients can quarterly claim a credit against 70% of qualified wages up to $10,000 paid per employee in the first half of 2021.
– American Rescue Plan Act – 2021
With this Act in play, that credit limit remained the same, i.e., 70% of qualified wages up to $10,000 per employee per quarter. However, certain startup businesses that began after February 15, 2020, with average revenue of $1 million or less, were allowed a quarterly credit of up to $50,000.
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Who can Qualify for ERC?
After enactment of the American Rescue Plan Act, most employers, hospitals, colleges, universities, and 501(c) organizations qualify for the credit.
The eligibility here depends on one of these three essential criteria stated below:
1. Suspension or reduction of business hours
Employers would be eligible if they had to fully or partially suspend or reduce the business hours due to a Government order. However, in that case, the credit is applicable to only the affected part of that quarter.
2. Decline in revenue
If employers had a notable decline in revenue during the coronavirus outbreak, they would be eligible for this claim.
3. Recovery startup business
If employers run a recovery startup business, they will be eligible for the claim. However, to qualify as one, they must:
- Have started after February 15, 2020
- Have an annual revenue of under $1 million
- Be ineligible for ERC under the other two categories
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PEO’s Role in Employee Retention Credit
A professional employer organization (PEO) leases employees to employers by entering a joint-employment relationship. It allows the PEO to manage and share several employee-related responsibilities and liabilities with the employer.
Likewise, this also helps employers outsource their various human resource functions, such as workers’ compensation, employee benefits, payroll administration, and employment taxes.
PEOs can take certain responsibilities from HR like:
- Recruitment
- Unemployment administration
- Compliance assistance
- Family and Medical Leave Act administration
- Benefits administration
- Payroll administration
- Workers’ compensation administration
- Drug testing programs
As per the contract with the PEO, employers can outsource some or all of the HR functions mentioned above.
However, if you are a small employer, you may not have the expertise or the infrastructure for these functions. You may also not have the time or resources to focus on intricate procedures like HRIS, payroll, and transactions.
ERC falls under benefits administration in any organization. So, if you outsource these concerned services, the PEO can directly look into it. In that case, the PEO will handle the benefits administration as well as all the employee queries.
Are you interested to know more about the perks of outsourcing recruitment, benefits administration, and compliance assistance? You can go through our blogs and talk to us now to appoint the best in this industry.
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Reference links:
https://www.investopedia.com/what-is-the-employee-retention-credit-and-how-to-get-it-4802575
https://www.paychex.com/articles/compliance/employee-retention-credit
https://www.irs.gov/coronavirus/employee-retention-credit
https://en.wikipedia.org/wiki/CARES_Act
https://www.journalofaccountancy.com/news/2021/aug/irs-updates-employee-retention-tax-credit.html
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