How COVID-19 Lockdowns May Have Impacted Essential Business Employers
When COVID-19 cases started growing exponentially in the spring of 2020, many companies – and even entire industries – had to figure out what it meant to be an “essential business” overnight.
Some cases were very clear. Hospitals, pharmacies, utility companies, and grocery stores had to remain open for the health and safety of the public. Spas, movie theaters, bars, and music venues were not essential to public welfare, so they were closed during government shutdowns.
But there was confusion for many organizations, who were stuck trying to determine if all or part of their business was classified as “essential.”
If you were one of these employers who operated an essential business during COVID-19 lockdowns, you may have some questions.
If My Company Was Deemed An “Essential Business,” Can I Still Be Eligible For The Employee Retention Credit (ERC)?
The short answer is: maybe.
Because your organization was considered an essential business, you were able to remain open during COVID-19 lockdowns. If the government ordered all of your business functions to remain open, you would not be considered to have a full or partial suspension of operations.
However, although essential business employers like you didn’t typically experience a full or partial suspension of operations, your business may still have been impacted. You could potentially be considered to have a partial suspension of operations if, “under the facts and circumstances, more than a nominal portion of [your] business operations are suspended by a government order.” (IRS website).
One example would be if you have both essential and non-essential business operations. If both functions make up more than a nominal portion of your business and a shutdown order fully or partly impacted your ability to operate, you may be considered to have a partial suspension even if the essential portion of your business operations was unaffected.
For instance, if you own a real estate company that offers interior design and staging services for clients as well, the real estate transaction portion of your organization would be deemed an essential business and unaffected by a lockdown order. But the interior design and staging services portion may not be considered essential and, if not, would be partially or fully suspended. If that service involves more than a nominal portion of your business operations, you may be eligible for the ERC.
Another possible scenario that may make you ERC-eligible? If your essential business was required to close for a period of time during normal working hours by a government order, that may be eligible as a partial suspension of operations.
How Do I Know if the Non-Essential Portion of My Business is More Than “Nominal”?
A look at the IRS regulations can help determine if the non-essential side of your business constitutes more than a nominal portion of your operations.
Solely for purposes of the ERC, “a portion of an employer’s business operations will be deemed to constitute more than a nominal portion of its business operations if either (i) the gross receipts from that portion of the business operations is not less than 10 percent of the total gross receipts (both determined using the gross receipts of the same calendar quarter in 2019), or (ii) the hours of service performed by employees in that portion of the business is not less than 10 percent of the total number of hours of service performed by all employees in the employer’s business (both determined using the number of hours of service performed by employees in the same calendar quarter in 2019).” (IRS website).
It can be confusing to figure it out on your own. But it’s worth checking to see if you are eligible. You could receive a credit of up to $26,000 per employee on your payroll. If you work with us, we first determine your eligibility through a free analysis. Then, if you are eligible, we gather your payroll information and necessary forms to determine the credit amount. Finally, we prepare the paperwork and finalize the details.
Contact us today for a free analysis to see if you’re eligible.