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Employee Retention Credit w/Rick Braa
Acclaimed restaurant consultant Rick Braa hosted a webinar that detailed the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC). He broke down how the ERC is calculated in this part.
The PPP loan forgiveness is predicated on spending at least 60% of it on your payroll, on labor. Braa says you want to aim for this percentage so you can use some of the extra labor costs for employee retention credit. Previously, you could have an ERC or you could have PPP, but you could not have both — this has now changed. More than that, Braa said, they are now retroactive, which he says is a huge “windfall” for companies.
If your ERC is larger than the payroll tax you owe, it is refundable.
ERC can be paid in advance of the quarter, taken with each deposit or taken at quarter-end filing. Braa said he is taking the third option for his clients. If loan forgiveness has not been initiated, it has not been clarified if you can go back. There is conflicting language in the bill, which Braa expects will be cleared in the next 30 days.
Describing it as a “game changer”, Braa reports that the ERC can now be retroactively applied to 2020. Whether you qualify depends on a few factors, including the number of employees you’ve had on payroll and your sales volume on a quarterly basis.
If in 2020, you had more than 100 employees and you paid them to do no work, you can qualify for a retroactive ERC. If you have 100 employees or fewer, you can receive the credit even if you are paying your employees to work. Most restaurants will fall into that, Braa said. This applies to your total payroll — if you have five restaurants and 150 employees among them, you’d qualify for the greater than 100 employees group. Braa said this will be a big deal for retroactive 2020 ERC.
The quarterly evaluation qualifies you if you are down a certain percentage of sales per quarter. You compare your 2020 quarterly sales with the equivalent quarter of 2019 — if you have a 50% reduction in sales, you qualify until you regain 80 percent of sales from the same quarter of 2019. You’ll be counted for the quarter in which you do recover, but not the one after. In short, if you are down considerably in quarter 2, bounce back in quarter 3 to 80 percent and continue on into quarter 4, you’d get retroactive ERC for quarter 2 and quarter 3, but not after.
These rules are complicated, Braa said, and intertwined.
For 2021, ERC is in effect until June 30. The qualifications are a bit different, as the focus is on your total fulltime employees. You qualify for ERC in 2021 if you have 500 fulltime (30+ hours) or fewer; your operations were fully or partially suspended due to coronavirus restrictions; and at least a 20 percent reduction in sales compared to the same quarter in 2019 for either quarter of 2021.
The credit in 2021 is 70% of the first $10,000 per employee, per quarter. Last year it was $5000 for the entire year. This year, each quarter independently can pay out. So that 70% comes out to $7,000 and you can end up with $14,000 for Q1 and Q2 of 2021.
“This is pretty exciting,” Braa said, though he cautioned. “Again: no double-dipping.”
Braa said there’s a lot of room for optimism right now. If you’ve held on so far, there’s a lot of help available.
“There’s a lot of money out there right now,” Braa said. “The PPP money, this Employee Retention Credit, all these grants credits, and I expect another round of stimulus money.”
Braa said he expects another round of stimulus going into summer. If people can bridge the gap to spring, a lot of folks can maximize their stimulus and be in “relatively decent shape” going into summer.