What Architecture, Engineering and Construction Firm Owners Need to Know About the Impact of a Full or Partial Suspension on the Employee Retention Credit

The Employee Retention Credit (ERC) is a refundable payroll credit of up to $5,000 per qualified employee for 2020 and $7,000 per employee per quarter in 2021. If you are eligible for both 2020 and all four quarters of 2021, you can receive up to a total of $33,000 per employee.

A taxpayer could qualify for the ERC with the 2020 and 2021 Quarterly Gross Receipts test (50% reduction for 2020 and 20% reduction for 2021, both compared to 2019) if the operation of the trade or business was carried on during calendar year 2020. This holds whether or not it was fully or partially suspended due to orders from an appropriate governmental authority that limited commerce, travel, or group meetings (for commercial, social, religious, or other purposes) as a result of the COVID-19 pandemic.

A/E/C firms that experienced some type of government suspension in 2020 may qualify for this credit even if they did not have the required reduction in Gross Receipts. Even if you were considered an essential contractor, you may still qualify as having experienced a partial government suspension.

The government-directed shutdown may have directly or indirectly effected your essential company during 2020 as follows:

• An order from the city’s mayor stating that all non-essential businesses must close for a specified period may have had more than a nominal effect on your essential business, qualifying you for a partial shutdown.

– For the ERC, a portion of an employer’s business operations will be deemed to constitute more than a nominal portion of its business operations if either (i) the gross receipts from that portion of the business operations is not less than 10 percent of the total gross receipts (determined using the gross receipts of the same calendar quarter in 2019), or (ii) the hours of service performed by employees in that portion of the business is not less than 10 percent of the total number of hours of service performed by all employees in the employer’s business (determined using the number of hours of service performed by employees in the same calendar quarter in 2019).

• A State’s emergency proclamation that residents must shelter in place for a specified period, other than those who are employed by an essential business, and who may travel to, and work at, the workplace location.
• A local official imposing a curfew on residents that impacts the operating hours of a trade or business for a specified period
• A local health department mandating a workplace closure for cleaning and disinfecting
• An essential business that can demonstrate that its suppliers were unable to deliver needed supplies because of government orders that caused the suppliers to be suspended
• A governmental order stating that operations may continue, but the operations are subject to modification (i.e. to satisfy distancing requirements). Such a modification of operations is considered to be a partial suspension of business operations due to a governmental order if the modification required by the governmental order has more than a nominal effect on the business operations.
• A trade or business that is operated by multiple members of an aggregated group are treated as a single employer for ERC purposes. If the operations of one member of the aggregated group are suspended due to a governmental order, then all members of the aggregated group are considered to have had their operations partially suspended, even if another member of the group is in a jurisdiction that is not subject to a governmental order.

For additional information on maximizing your results from the Employee Retention Credit, please click here. As always, we are here to help. Please reach out to Joseph Molloy, Paul Gevertzman or your Anchin Relationship Partner with any questions.