Understanding Full-Time Employment for Employee Retention Credit

The Employee Retention Credit (ERC) is a fully refundable tax credit that eligible employers can request to cover certain payroll taxes. It's not a loan and doesn't have to be repaid. Small employers receive greater benefits under the ERC regime, as they can include wages paid to all employees. Large employers, however, can only include salaries paid to employees for not providing services.

So, what is considered full-time for the ERC? A full-time employee in this case is defined as someone who works an average of 30 hours a week or 130 hours a month. Technically, yes, but you only pay salaries that meet the requirements while the terms of office are in effect and have a more than nominal impact on the company. Instead, the employer must reduce wage deductions on their income tax return for the tax year in which they are an eligible employer for the purposes of the ERC. The Department of the Treasury and the IRS have been asked about the definition of “full-time employee” for the purposes of the employee retention credit, including (i) whether it is required to include “full-time equivalents” (within the meaning of section 4980H (c) (E) of the Code) when determining whether an eligible employer is a large employer or a small eligible employer and (ii) whether wages paid to employees who are not full-time employees can be considered qualified salaries if all other requirements for treating amounts as qualifying wages are met.

For most taxpayers, the refundable credit exceeds the payroll taxes paid in a credit-generating period. While an employer cannot include salaries financed by a PPP loan in the ERC calculation, PPP funds only apply to eight to ten weeks of wage expenses. ERC eligibility periods are longer. PPP loans can also finance non-wage expenses. For purposes of determining whether an eligible employer is a large or small qualifying employer, eligible employers are not required to include full-time equivalents when determining the average number of full-time employees.

However, for the purpose of identifying qualified wages, an employee's status as a full-time employee is irrelevant and the wages paid to an employee who does not work full time can be considered qualified wages if all other requirements for treating the amounts as qualifying wages are met. No, but, if possible, allocate the maximum allowable non-wage costs to the waiver of the PPP. It is likely that sister holding companies can be treated as separate operations or businesses when considering the status of an eligible employer, since the Fund owned by the holding companies is not an active operation or business (rather a passive investment vehicle).Cherry Bekaert LLP and Cherry Bekaert Advisory LLC practice in an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable laws, regulations and professional standards. Cherry Bekaert LLP is an independent, certified public accounting firm that provides certification services to its clients, and Cherry Bekaert Advisory LLC and its subsidiaries provide tax and business advisory services to their clients. Cherry Bekaert Advisory LLC and its subsidiary entities are not authorized public accounting firms. The entities that belong to the Cherry Bekaert brand are independently owned and are not responsible for the services provided by any other entity that provides services under the Cherry Bekaert brand.

Our use of the terms “our firm” and “we” and terms of similar meaning denote the alternative practice structure of Cherry Bekaert LLP and Cherry Bekaert Advisory LLC. Therefore, employers O and P are considered a single eligible employer with more than 100 full-time employees for the purposes of the employee retention credit. The 60 percent of salaries that Employer T pays to administrative staff for hours during which employees actually provide services are not considered qualifying wages for purposes of employee retention credit. The IRS recently clarified its conflicting statements about exactly what salaries are considered “qualifying salaries” eligible for employee retention credit. For more information on limits of amounts that are considered qualifying wages, see Determining maximum amount of an eligible employer's employee retention credit. For companies that had an average of more than 100 full-time employees, qualified salaries are salaries that are paid to an employee for time employee is not in service due to suspension of operations or significant decrease in gross revenues. Payments, including severance payments, made to former employee after termination of employment relationship are not considered qualifying wages for purposes of employee retention credit.

Wages paid to employees for hours during which they served are not considered qualified wages for purposes of employee retention credit.

Zachary Kadner
Zachary Kadner

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