Unsure How To Take Advantage of the Employee Retention Credit? Find Out How It Works and If Your Business Qualifies

The Employee Retention Credit under the CARES Act encourages businesses to keep employees on their payroll. The refundable tax...

September 20, 2020
Press the button to generate random icebreaker questions.
There are 300 more icebreaker questions at the bottom of the article
How would you describe your job to a five year old?
What season would you be?
What is a weird food you have tried? Would you eat it again?
What is your favorite holiday tradition?
Would you go in the mother-ship with aliens if they landed on Earth tomorrow?
What is your favorite season?
Do prefer working from home or the office?
What is your earliest memory of this job?
What is the best thing you have bought so far this year?
What is the earliest book you remember?
If you had to move to another country, which one would you choose?
You are the best criminal mastermind in the world. What crime would you commit if you knew you would get away with it?
What is your favorite movie genre to watch?
What was the last thing you ate?
What person from history would you add to Mount Rushmore?
What is a weird fact you know?
What is your favorite part of working from home?
Were the Spice Girls a good team?
Imagine you can instantly learn any language. Which would you choose?
If you could live in any state, which state would you pick?
Which fictional team is the best team of all time?
What did you want to be when you grew up?
What do you usually eat for a quick lunch?
What simple food will you never eat?
Show us the weirdest thing you have in the room with you right now.
Would you rather stay at a hotel or an AirBNB?
What is your favorite movie genre to watch?
Are you more productive in the morning or at night?
Who is someone in your community that makes a difference?
Who was your most unique pet?
Choose one famous person from history you want on your team during a zombie apocalypse.
What is a good way to give back to the community?
Which song could you listen to over and over again?
Is Hugh Grant funny?
What is your favorite thing to eat for breakfast?
Would you want to have an imaginary friend today? Did you have one as a child?
What actor or actress would you want to play you in the movie about your life?
What is the best super power?
What is your New Years resolution?
You can only eat one food again for the rest of your life. What is it?
What is the best work holiday?
What is the first gift you remember receiving?
Would you rather join Metallica or Backstreet Boys?
What is the best example of a community you have seen?
What is an easy way to do something nice for someone?
Show us your phone background and tell the story behind why you picked this image.
What was your first job?
Pick any band to play at your funeral.
If you could have an unlimited supply of one thing for the rest of your life, what would you pick?
Which superpower would you give to your arch enemy?
What is the most obscure superpower you would want?
What emoji best describes how you are feeling right now?
If you could live in any country, which country would you pick?
Would you rather live in a city or a town?
What is your favorite holiday?
What is something you accomplished as part of a team?
What is your standard office lunch?
What is your most used phone app?
What is your favorite season?
Have you ever won something as a team?
Imagine you are a professional baseball player. What is your introduction song?
Beach holiday or ski trip?
Have you ever been to a funny comedy show?
Would you rather live at the North Pole or the South Pole?
What is your favorite song to sing?
If you could live in any state, which state would you pick?
Imagine you could teleport anywhere. Where would you go right now?
What is the most unusual job you have heard of?
What was the last thing you ate?
You can visit any fictional time or place. Which would you pick?
What do your family and friends think you do all day?
What movie do you wish you could watch again for the first time?
Show us your most-used emoji.
What was the most unique style or fashion trend you ever embraced?
What movie defined your generation?
You are stranded on a remote desert island. Are you alone or with your worst enemy?
What is your favorite knock-knock joke?
Have you ever told someone Santa is not real?
Do you know how to speak more than one language?
On a scale of 1 – 10, how much of a team player are you?
What is your #1 recommendation in this city?
What is your favorite holiday?
What bucket list item do you most want to check off in the next six months?
What is your favorite mythical creature?
What was the first way you made money?
If you could be great at any Olympic sport, which would it be?
Which song could you listen to over and over again?
When did you start liking/hating mushrooms?
Where is your favorite vacation spot?
Do you take your PTO all at one time, or another way?
Which show do you remember most from your childhood?
Which beverage goes best with pizza?
Would you want to have a personal assistant follow you around everywhere and do what you asked of them?
Have you ever met your idol?
What did you want to be when you grew up?
Would you rather live 100 years in the past or 100 years in the future?
What is your hobby?
When you are alone in the car, what volume is the music at?
Imagine you no longer have to work. How would you spend a Tuesday?
What is your favorite type of sandwich?

The Gist:

The Employee Retention Credit under the CARES Act encourages businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19 for wages paid between March 13, 2020 and the end of the year.

The Detail:

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in late March, provides economic relief to businesses and individuals. The stimulus package, which made $370 billion in funding available to small companies, contains a provision allowing certain employers to claim a tax credit for retaining employees during the crisis.

This provision – the employee retention credit – allows eligible employers to take a payroll tax credit for retaining employees during this crisis. Eligible employers can claim a credit against 50 percent of wages paid per quarter, up to $10,000 per employee annually for wages paid between March 13, 2020 and the end of the year.

It is important to note that all guidance originally released since implementing the CARES Act has indicated that any employer taking a Paycheck Protection Program (PPP) loan is not eligible for the employee retention credit. Additionally, any employer that is a member of an aggregated group (controlled and affiliated service groups) who receives a PPP loan, will impact the other members. None of the members will be eligible for the retention credit if even one member gets a PPP loan.

However, the Small Business Administration (SBA) and the U.S. Treasury Department issued new guidance that addresses the PPP interaction and employee retention credit. The new guidance now allows employers who have taken a PPP loan and repaid the loan by May 14, 2020, under the SBA safe harbor, and will now be eligible to take advantage of the credit.

This is a complex evaluation, but you can start with evaluating if you are eligible for the retention credits. IRS informal guidance can help clarify whether you qualify and how these credits work to help you make an informed decision.

The IRS has provided robust unofficial guidance in FAQs to flesh-out how the credit works for employers. While this guidance is only informational, not the legal authority, it gives the IRS general direction to go with these credits.

Here is a brief overview of what employers need to know about the credit. Employers should refer to the IRS FAQs on the employee retention credit to find more details.

Does your business qualify for the employee retention credit?

Generally, most employers, including tax-exempt organizations, can qualify for the credit. There are specific entities that cannot be eligible including self-employed income (employee wages can be included), household employers, and government employers including instrumentalities.

Eligible employer's qualification is determined by one of two factors, and one of these factors must apply in the calendar quarter the employer wishes to utilize the credit:

Trade or business that is fully or partially suspended due to a government order. The credit applies only for the portion of the quarter the business is suspended, not the entire quarter. This factor may apply if companies are required to reduce business hours due to government order. The IRS clarified that some businesses that operate in multiple geographies where only some of their locations closed, may still qualify under this first factor if they apply the suspension rules across their locations. Additionally, aggregated groups are treated as a single employer.

The IRS also clarified which businesses do not meet this factor test. Generally, companies that are considered essential would not qualify under this factor unless they have a supply of critical material/goods disrupted in a manner that affects their ability to continue to operate. It does not matter if some of these essential businesses are impacted by non-essential orders that impact revenue. Additionally, businesses shuttered but able to continue their operations largely intact through telework do not qualify under this first test. However, any of these businesses still may be eligible for the credit with the second-factor test.

An employer that has a significant decline in gross receipts. In general, the employer is first considered eligible for the credit under this factor test when gross receipts in a calendar quarter are below 50% of gross receipts when compared to the same calendar quarter in 2019. They are no longer eligible under this factor test the calendar quarter immediately following the quarter gross receipt exceed 80% compared to the same calendar quarter in 2019.

The IRS clarified that an employer could go back and amend the Form 941 filing if they determine later that they qualified for the credit. The IRS also authorized rules for new businesses that allowed them to use the gross receipts for the quarter. They started business as a reference for any quarter, which they do not have 2019 figures because they were not in business, using estimates if they started mid-quarter. It’s important to note that a member of controlled or affiliated service groups are considered a single employer, so they must aggregate their gross receipts to determine when and if they qualify under this test.

Another important note: If any member of these aggregated groups got a PPP loan, then this single employer grouping negates the ability for all other members from utilizing the employee retention credit in 2020, unless the loan is repaid by May 14, 2020, under the SBA safe harbor, according to the most recent guidance issued by the SBA and the U.S. Treasury Department. Keep in mind, the PPP does not aggregate the group, so members would apply separately. This could have significant ramifications on these aggregate groups.

What is the amount of the employee retention credit?

The employee retention credit is 50% of qualified wages (including health benefits). The maximum amount of qualified wages is $10,000 per employee. Essentially, the maximum credit is $5,000 per employee (50% of $10,000) for the year.
Is there a minimum credit amount that can be requested on Form 7200?

The Internal Revenue Service (IRS) recently released guidance that after July 2, 2020, Forms 7200, Advance Payment of Employer Credits Due to COVID-19, that are filed must request a minimum credit amount of $25. Any credit advance requested on the form that totals less than the minimum will not be processed by the IRS. Any credit advance under $25 can be claimed by reducing a future deposit or claimed on Form 941 at the end of the quarter.

What wages qualify when calculating the retention credit?

In general, wages/compensation and qualified health expenses paid after March 12, 2020 through the end of the year qualify. Wages/compensation are defined as those amounts subject to FICA. Additionally, paid leave wages required under the Families First Coronavirus Response Act (FFCRA) paid leaves are not included in qualified wages. The IRS clarified pay to terminated employees such as severance payments are not included in qualified wages. Also, pay to certain individuals related to the employer are excluded.

To determine the qualified health expenses, the IRS has devised various ways of calculating depending on circumstances. Generally, they include the employer and employee pretax portion and not any after-tax amounts. Additionally, the IRS clarified that employers, that qualify the retention credit, may utilize the health plan expenses as qualified wages even if there are no or reduced hours/wages. This may lessen some of the financial burden on employers who qualify for this credit if they choose or are required to continue health benefits (check out this PAYCHEX article).

Generally, the qualified wages that an employer may include depend on if they had more or less than 100 employees in 2019. The 100-employee threshold utilizes 4980H (employer shared responsibility provision in the ACA) calculation of employee count to determine if the employer exceeds the 100 full-time and full-time equivalent threshold.

Employers with more than 100 employees can only use the qualified wages of employees not providing services because of the suspension or decline in business. Wages paid for sick, vacation or other days off due to an existing employer policy, cannot be included in qualified wages for larger employers. So, these larger employers can only utilize the credit to pay for employees not working.

Additionally, there are guardrails to prevent certain wage increases, after the employer is eligible for this credit, to count toward the credit. Employers with 100 or less employees can use all employee wages, including those still providing services and any time away from work outside of FFCRA paid leave.

The IRS has also ensured there is no double-dipping for credits. Consequently, employers who take this credit on certain wages cannot take the credit on those wages for paid family medical leave under section 45S of the Internal Revenue Code. Additionally, an employee included for the Work Opportunity Tax Credit under section 51 of the Internal Revenue Code may not be included for the employee retention credit purposes. Essentially, employer’s taking these other credits should evaluate which credit is more financially advantageous to them.

How do the credits work?

The employee retention credit is allowed against the employer’s share of social security taxes. However, the credit is fully refundable. This means that if the credit exceeds the employer’s total liability of the portion of Social Security in any calendar quarter, the excess is treated as an overpayment and refunded to the employer.

The IRS FAQs permit a dollar-for-dollar offset against payroll taxes owed (including taxes withheld from employees) to allow employers to access these funds before the quarter-end. Additionally, the IRS has designed an expedited refund process if these credits still exceed the employer’s total payroll taxes.

Employers can take advantage immediately of the advance payments by filing Form 7200 to receive these credits in excess of the payroll taxes. This is the same form that is utilized to expedite the refund of the FFCRA paid leave credit. Remember both credits may be claimed by the same employer, but not on the same wages. The IRS recently issued guidance that states the minimum that can be requested on Form 7200 for the department to process is $25.

Keep in mind, that although aggregated employer groups are treated as a single employer for determining whether they qualify for the credit, once they qualify, each entity must claim and reconcile the credit individually. However, the aggregate group will still need to apportion the qualified wages limits across the entities.

Reconciliation of the tax credit

At the end of the quarter, the amounts of these credits will be reconciled on the employer’s 941. The IRS is redesigning the 941 to accommodate reconciling this credit in addition to the FFCRA leave credit. The IRS released a draft of the revised Form 941. While this is not the final form, it gives a good indication of how the IRS will approach reconciliation.

These changes have added increased complexity to an employer’s quarterly filing. It is complicated to add this layer to reconcile payroll tax liability that an employer may not have paid due to these credits, with the 7200 advances in addition and ensuring the credit is calculated correctly. This is all in addition to the regular reconciliation of employer federal payroll tax liability.
How does a PEO client employer reconcile?

Some employers utilizing PEO do not file their own 941, so it’s important for them to understand how they would reconcile this information and receive the credit. The IRS posted guidance to clarify how it would work.

If an eligible employer uses a CPEO, the CPEO will report the retention credit on its aggerate Form 941 and Schedule R. The employer can still claim the credit in advance by filing Form 7200. They will need to provide a copy of their Form 7200 to their CPEO, so the credits can be properly reconciled.

If an eligible employer uses a non-certified PEO, the PEO will report the retention credit on its aggregate Form 941. The PEO will also separately have to file a Schedule R only for the employers claiming the credit to allocate the credit appropriately. Again, the employer can claim the credit in advance on Form 7200 and provide the PEO a copy to appropriately reconcile.

What's next?

While we still await formal guidance on the credits and a finalized 941 to reconcile them, employers can start to evaluate how they gather all the information necessary to determine the credits for which they qualify. They should also consider evaluating other sources of federal funding such as the PPP loan to determine which federal funding source is most advantageous to their particular circumstance. Remember, you will not qualify for a retention credit if you received or any member in your aggregate group received a PPP loan, regardless of how much of that loan is forgiven.

Browse our Free Employee Recognition Guide

Get the foundational knowledge on creating an employee recognition program that boosts employee engagement and helps them feel valued.

Explore Guide

Frequently Asked Questions

Is Assembly SOC 2 compliant?

Yes, at Assembly, security is a top priority. Each quarter, we have ongoing security work that is everyone’s responsibility. While we maintain a strong security posture, it was important for us to prove to our customers that we do everything we claim to do. This led us to pursue a SOC 2 Type II report that would provide evidence of our compliance with industry gold-standard security practice.

What's the ROI for employee recognition?

There is study after study showing that employee recognition leads to increased engagement. This in return creates an environment where employees are happier and more motivated which increase productivity and reduces voluntary turnover significantly. In order to filled critical roles, companies tend to spend nearly twice the value of an annual salary. Assembly is an investment in your employees that supports your bottom line.

Does Assembly offer longer-term contracts?

Yes, we will offer contracts for companies with longer-term agreements to help larger customers have more certainty around future costs.

The minimum agreement term is a 12-month subscription.

Does Assembly offer onboarding support?

We do and for FREE! Any new customer needing further support to get started with Assembly to ensure you're set up for success can request custom onboarding support. Improving your employee experience is about much more than just using our amazing software; it’s about transforming your business to create a workplace that people love. That’s much easier to do with the personal support and advice from our passionate people experts.

Is there a free version of Assembly?

Yes. We offer a completely free plan for up to 50 team members. This plan is intended for teams or organizations that are looking to get started with an employee engagement tool. Keep in mind, this plan is limited in features.

All customers can open an Assembly account for free and get started without a credit card. Then you can change plans as necessary.

How much do rewards cost?

At the time of redemption (when your employees exchange their points for a paid reward) you'll pay face value. If a reward is a $10 Amazon gift card, your cost will be $10. All paid rewards are billed for on a monthly basis.

The good news is that you don't have to pay for rewards upfront because we only charge you when points are redeemed, not when they're earned.

Does Assembly offer discounts?

We offer discounts or educational or charitable organizations. In order to secure a discount, you'll first need to book a demo with a customer support specialist.

For all other organizations, we are willing to consider longer-term agreements in exchange for discounts. To set up annual plans or longer, you will need to book a demo with a customer support specialist.

How do I cancel my plan if needed?

If you're on a month to month plan, you can go here and cancel anytime. If you're having concerns or need help setting up your account for success, you can always book a demo with a customer support specialist.

If you're on a longer-term custom plan, you'll need to reach out to your customer support specialist to cancel your account or email us at support@joinassembly.com.

What customizations are available?

Great question! You can customize your core values to match your organization's to boost and track alignment. You can change your currency from the 🏆 emoji (our default) to any emoji of your choice. You can swap our logo for your own. You can also set up company culture rewards such as, "Lunch with the CEO," "Buy a book on us," and so much more!

Who can give or receive recognition?

While we recommend a peer to peer set up where anyone in your organization can give or receive recognition, you can set up Assembly however you want. If you need to limit the people who can give or receive recognition, that's perfectly fine and can be done from your Admin, here.

What integrations are available?

Assembly connects to the tools your employees use every day to offer an easy, seamless experience with minimal change management.  

Assembly has integrations with HCM/HRIS systems like ADP, Google, Office 365, and Slack. We also integrate with communication tools like Slack and Teams so you and your employees can access Assembly wherever they work now.

What's your average adoption rate?

That depends on the company's permissions set up. That said, over 90% of the employees on Assembly's platform are recognized on a monthly basis. That means nearly every employee across all of our customers are receiving regular recognition from their peers, managers, or leadership. We're extremely proud of this.

Must rewards be set up to use Assembly?

They are not required. You can use Assembly without having rewards set up. However, we don't recommend it if you intend to have a high adoption and usage rate. You can always keep the costs down by offering internal culture rewards that are fulfilled by you internally.

Are points required to use Assembly?

No, you can remove allowances from anyone or everyone. It's up to you but we do recommend using points whether they're worth a real dollar value or not. Companies that use points have a much higher engagement rate even if those points don't exchange for real dollars.

Could find the answer you are looking for?

Please schedule time with an expert and we will help you to get all your questions answered