Employee Retention Credit: The Impact on Small Businesses

The following is a guest post by Jacob Dayan, of Community Tax

The views and opinions expressed in this article are those of the author only and are not endorsed by Credit.com.

It’s no big secret that small businesses have been hit hard by the economic effects of the coronavirus. In a recent industry study, over 100,000 restaurants closed, either temporarily or permanently, six months into the pandemic, The losses that have accumulated over this past year have created uncertainty over when and how things will return to normal. The National Restaurant Association determined that over eight-million restaurant employees had lost their positions. Operators have been forced to lay off workers, and on average, a total of 83% of restaurant staff has been laid off.

Section 2301, the employee retention credit, of the Coronavirus, Aid, Relief and Economic Security (CARES) Act declares that eligible employers can receive a credit to help small businesses survive and offer workers payroll. The credit gives wages of up to $10,000 for every employee. And it includes covered health plan expenses from January 1, 2021 through June 30, 2021. Businesses can receive reductions in federal employment deposits. Or, they can ask for an advance in tax credit for whatever amount isn’t taken care of by the deposit reductions.

Is the Plan Effective?

In short, no. On the surface, this plan appears to provide the kind of recovery and assistance small businesses need to get back on their feet. Taking a closer look, however, it’s evident that eligibility is not as straight-forward as it, arguably, should be. For example, tax-exempt organizations can only receive the credit if their business was open in 2020 and if they were required to suspend business operations due to government restrictions in response to COVID-19.

Lastly, they must have experienced a severe decline in gross receipts. While government restrictions certainly influenced the shutdown of many small businesses, this enforcement isn’t the only reason why businesses decided to close last year.

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What Also Made Restaurants Close?

Fear of exposure and the general public discomfort that surfaced in response to the coronavirus, as well as concerns over accidentally not following strict protocols for business operations. This, evidently, caused many small businesses to close. Closing was, in a lot of ways, much easier than trying to meet the guidelines.

It’s difficult to prepare, handle, and serve food using social distancing guidelines, and many restaurants didn’t see pursuing business as practical during this time. Despite being equally affected by the virus, they’re not qualified candidates for the credit. That’s because their reasons as to how the virus impacted business and their decision-making was different than the requirements spelled out in the act.

What about the Workers?

The same credit ineligibility applies to workers of businesses with over 100 employees in 2019. Unless you were an employee who was laid off during that year because of revenue decline or closures, you’re not eligible to receive wage relief coverage. Businesses that are staffed with less than 100 employees, do qualify for coverages, regardless of whether the employee was laid off or is still working for the employer.

There’s a lack of consideration towards individual circumstances as it pertains to the impact of the coronavirus and how it has impacted small businesses. There are many reasons that go well beyond what has been listed in the eligibility requirements that make business owners and employees more than deserving of this credit.

Who Actually Benefited?

It seems that only those businesses that were readily established or franchises of larger corporations ultimately benefited from this assistance. Family-owned and independently operated businesses that can’t hold on to enough employees are forced to miss out on this opportunity to get business going again. Perhaps it’s the attempt to gentrify and drive out less sought-after businesses that have influenced this credit plan. Or, perhaps the government did not think this through enough. Either way, small businesses are continuing to struggle, and it’ll be up to them to create recovery solutions.

How Can Things Improve?

Those seeking to help small businesses get back on track may consider ways to encourage others to “buy local” as a means to supply small businesses with income again. This is a trend that is frequently endorsed in major cities where small local restaurants survive because they serve so many people. Actively suggesting to the public that they should buy local may be what makes or breaks the success of these smaller establishments. Relying on people to come through at the public level is their best bet to surviving during these challenging times, as long as they can do so safely while observing the appropriate public health guidelines.

How Can Workers Be Helped?

In addition to providing local encouragement, people can start motivating previous employees to return to work. And they can welcome in new candidates interested in potential job openings. Just as beginner photographers charge little to no fee when they first begin building their portfolios, small businesses can advertise that there is room to grow within their companies.

One of the silver linings that came out of the coronavirus was the accepted need for people to come together. There’s now a greater community willingness to get involved and help restore what was lost from the pandemic. And that suggests taking these unconventional routes to rebuild small businesses may be considerably effective. It would be great if all small businesses were given the credit they deserve. Everyone deserves compensation after this crisis. Unfortunately, this is not the way of the world. And just as we did with the virus, we’ll adjust to these changes, too.

Small businesses are underrated gems of local communities. The way forward is to leave room for employees to see the benefit of staying with a struggling business long enough for real career growth and promotion to take shape. To do that, however, the business needs access to resources to keep it afloat. Hopefully, in the future, there will be a smarter plan in place to help small businesses–and, importantly, employees–afloat during a massive economic crisis.

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