Who Is Eligible for the Employee Retention Credit?

Monday, February 27, 2023

Business owners in the construction industry may have heard about the Employee Retention Credit (ERC). It’s a payroll tax refund from the government offered to businesses that kept employees on payroll during COVID-19. Eligible companies can receive a refund of up to $26,000 per employee.

However, there are many complex factors that determine whether a business is eligible. Businesses should do their homework on companies offering ERC assistance and ask some key questions, including these four:  

  1. Did my business shut down during the pandemic? We know that, in many locations, the construction industry was deemed an essential business and never truly shut down. However, the IRS has kept the definition of a government shutdown fairly open, allowing room for varying situations. Depending on a business’ operations during COVID-19, it may qualify for shutdown requirements, making it potentially eligible for the ERC. However, a word of caution here: Many employers were subject to government orders requiring them to modify their operations, such as social distancing or the sanitizing of equipment or furnishings. For an employer to qualify for an ERC, the IRS requires that the government order caused more than a nominal effect on operations.
  1. How did the supply chain affect my business?  We know that virtually no one in the construction industry was untouched by the supply-chain challenges of the last three years. Some of a construction business’ suppliers may have been subject to a government order suspending their business operations, which in turn may have negatively impacted that construction business dependent on the supplies. However, the IRS has said that in order for a business to claim the ERC, it must have been unable to obtain critical goods or materials from alternative suppliers, and because of that, the supply-chain disruption must have forced its own operations to be fully or partially suspended. 

  2. Where is my business located? If it is in a single location, eligibility will be easier to assess than for businesses with multiple locations. Companies operating in multiple locations were often subject to a variety of government orders. Some locations may have operated as normal while others were shut down. To qualify for an ERC, the IRS requires that the employer had established a policy to operate its business consistently across all locations. Fortunately, there are many ERC companies that can help businesses navigate the process on this question and others as easily as possible.

4. How was my business financially impacted? If revenue increased during 2020 and 2021, the business isn’t automatically disqualified for the ERC. It could still be eligible to receive the ERC if it experienced limitations in commerce, group meetings and/or business travel, or if it was subject to a partial or full suspension due to a COVID-19 government order.

While the ERC process involves asking these questions and a few more, there are thousands of companies in the construction industry that have claimed the capital that’s theirs to cover operating expenses, grow their businesses, hire quality talent, pay off debt, build a safety net and so much more.