Employment Retention Credit for Manufacturing

It comes as no surprise that the pandemic has disrupted the supply chain, which in turn has impaired manufacturing businesses. According to the U.S. Census Bureau survey, manufacturing had the highest reported domestic supplier delays due to supply chain disruptions. In 2020, the Employee Retention Credit (ERC) was added to the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help businesses who were impacted by the COVID-19 pandemic. The refundable payroll tax credit can provide significant refunds to eligible businesses. Under the Consolidated Appropriations Act of 2021, business owners who kept their employees on payroll during the pandemic can reap the benefits as well. Manufacturers can take advantage of the ERC credit along with the Paycheck Protection Program (PPP) for the 2021 tax year.  

What Impacts Qualify for the Employee Retention Credit? 

Manufacturing companies may be able to claim the credit if they were impacted during the pandemic in one or more of the following ways: 

  • Partial or full shutdown due to government mandate 
  • Decrease in products or services outputs 
  • Interruption to your normal business operations 
  • Supply chain delays 
  • Loss in revenue 
  • Capacity limitations due to social distancing requirements 
  • Inability to work with domestic or international vendors 

Debunking Myths Related to the Employee Retention Credit 

Although numerous manufacturing companies qualify for ERC, they prematurely disqualify themselves by not providing sufficient document claims or assume they would not qualify. Here are a few myths of why businesses might not think they would qualify: 

  • I am not eligible because I received a PPP loan. 
    • Originally, that was the case under the CARES Act. However, the Consolidated Appropriations Act, 2021 amended the PPP program, allowing for ERC eligibility regardless of receiving the PPP loan. Payroll costs used to calculate PPP loan forgiveness cannot be used to also determine ERC. However, wages that are not used as part of the PPP calculation can be used to claim ERC.   
  • My business was not considered essential. 
    • If your business experienced any of the disruptions we listed above, you may qualify for ERC. It no longer matters whether your business was deemed essential or non-essential at the start of the pandemic. 
  • We had a good year, the business even grew during the pandemic. 
    • Even if your business’s sales are back on track or grew during the pandemic, you may still qualify by looking at the impact to your business and government mandates. 
  • I am a larger employer with over 500 employees. 
    • The ERC looks at full-time employees who average 30 hours or more per week. If you have over 500 employees, the calculation of all full-time employees on payroll might still be under 500. Employees who were paid and did not work or worked less time than they were paid out for, could qualify for this credit, even if over 500.   

How Can the Employee Retention Credit Benefit Manufacturers? 

Manufacturing companies should evaluate if they are eligible for ERC, regardless of their size. The claim credits could be worth thousands of dollars per employee and can help offset payroll taxes. Manufacturing companies can use this money to repair supply chain issues, hire employees, and revive relationships with vendors.  

If you have any questions about how your manufacturing company can apply for ERC, please contact your BSSF advisor 

 

Disclaimer: This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our Firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.