Do employees have to be full-time for employee retention credit?

Eligible employers are entitled to an employee retention credit based on the qualified wages paid to their employees. The ERTC is a refundable credit that companies can request on qualifying salaries, including certain health insurance costs, paid to employees. For companies that had an average of more than 100 full-time employees, qualified salaries are the salaries that are paid to an employee for the time the employee is not in service due to the suspension of operations or a significant decrease in gross revenues. If a full-time employee were to switch to working part-time but was still paid for full-time work, wouldn't the employer be entitled to the credit because the employee was providing some services? The new IRS guide answers this question.

Large employers are allowed a partial credit for salaries paid to employees who continue to work fewer hours. However, credit is only allowed for additional wages paid in excess of the employee's part-time salary. These salaries are paid in accordance with existing leave policies, which represent benefits accrued over a previous period in which employees provided services, and are not wages paid for the time when employees did not provide services. While the Employee Retention Tax Credit (ERTC) program has officially expired, this does not affect a company's ability to apply for the ERTC retroactively.

Illinois employees should place certain federal and state labor law posters where employees and applicants can easily view and read them. For more information on the limits of the amounts that are considered qualifying wages, see Determining the maximum amount of an eligible employer's employee retention credit. In a somewhat surprising move, the IRS announced that, for purposes of determining whether an employer eligible for credit is a large employer or a small employer, employers are not required to include equivalent full-time employees when determining their average number of full-time employees. Therefore, employers O and P are considered to be a single eligible employer with more than 100 full-time employees for the purposes of the employee retention credit.

Reasonable methods include the method (or methods) that the employer uses to measure the right of exempt employees to intermittent or reduced leave under the Family and Medical Leave Act, or the method that it uses to measure the right of exempt employees to paid vacation and the use of such leave according to the employer's standard practices. The employee retention credit is allowed on qualified wages paid to employees; an amount must constitute a salary within the meaning of section 3121 (a) of the Internal Revenue Code (the Code) (or must constitute qualified health plan expenses attributable to those salaries) to fall within the definition of a qualifying wage. The minister's salary and stewardship allowance do not constitute salaries within the meaning of section 3121 (a) of the Code and, therefore, are not qualifying salaries for the purposes of the employee retention credit. These amounts do not constitute wages within the meaning of section 3121 (a) of the Code and, therefore, are not qualifying wages for the purposes of the employee retention credit.

The notice includes guidance on how employers who received a PPP loan can retroactively apply for the employee retention tax credit. This law increased the employee limit to 500 to determine what salaries are applicable to the credit. Employers with 100 or fewer full-time employees can use all the salaries of employees who work, as well as any paid time that they are not working, with the exception of paid vacation provided under the Families First Coronavirus Response Act. The original IRS rule was that receiving a PPP loan would disqualify an employer from receiving the employee retention credit.

Initially, the ERTC created a refundable tax credit designed to help employers who retained their employees during the COVID-19 health crisis. .