Tax practitioners and employers are still uncertain about the qualification requirements for the employee retention credit, enacted two months ago as part of the federal response to the coronavirus pandemic.
Determining whether specific employees’ wages qualify for the credit created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) has thrown some tax advisers for a loop, especially when it comes to salaried employees, practitioners said May 27 on a webcast hosted by the District of Columbia Bar Taxation Community.
“The criteria just to get in the door has been causing employers a lot of anxiety,” said Ruth M. Wimer of Winston & Strawn LLP.
Because the employee retention credit is intended for businesses harmed by COVID-19, those with employees who are able to telecommute and maintain business in the midst of the pandemic — like many law firms — might not be eligible, Wimer said. Part of the confusion stems from the requirement that an eligible business’s operations be fully or partially suspended under a government order.
“For some places like restaurants or the cruise lines, it’s pretty clear the government orders caused them to be at least partially suspended, but for many companies, we have a very hard time figuring it out,” said Wimer.
Wimer also explained that there’s a distinction in the credit between large and small employers: Those with 100 or fewer full-time employees can claim wages paid to any employee regardless of whether they’re actually working, while those with more than 100 full-time employees can claim only wages paid to an employee for the time that the employee isn’t providing services because of an economic hardship.
Adam Stella of Ropes & Gray LLP said it’s been challenging to determine how the latter requirement applies for salaried employees.
Wimer responded that she has advised clients to set up a procedure to calculate how much time salaried employees are working— and not working — by creating a schedule policy, such as a two-thirds reduced schedule.
However, Stella said that by the time some employers set up such a procedure, they might have already gone several weeks since the establishment of the credit during which they paid employees their full salary even though they weren’t actually working full time, running the risk of leaving money on the table when it comes to receiving credit funds.
“There’s always going to be an uncertainty on whether you’re claiming the right number,” said Wimer, but she added that the sooner an employer sets up a reduced-hours policy for salaried employees, the better off it will be in claiming a more accurate credit.