The restaurant and hotel industries faced tough challenges as a result of the COVID-19 pandemic. Many businesses had to transition to a takeout and delivery model, closing their interior dining areas and moving customers to outdoor seating. Restaurants and hotels also had to deal with labor shortages, rising food prices, supply chain delays, and increased health and safety costs.
Even though hospitality and retail businesses have already received millions of dollars in refundable credits and cash from the employee payroll tax credit, hotels and restaurants are still having financial difficulties. To incentivize companies to keep workers on their payroll, the Employee Retention Credit (or “ERC”) was introduced.
How does a hotel or restaurant qualify for ERC?
Government Mandate Test
Businesses that have their operations completely or partially suspended as a result of orders from the proper governmental authority restricting commerce, travel, or group gatherings as a result of COVID-19 may be eligible for the ERC. As long as the government requirements are in place, the employer must provide eligible wages during that time.
Hotels and restaurants that faced a whole or partial suspension of some of their operations (such as in-house dining versus takeout) but continued to run normally for other elements of their business may also be eligible for the ERC.
Gross Receipts Test
If the hotel or restaurant’s gross receipts in the first, second, or third quarters of 2021 are more than 20% lower than the organization’s gross receipts in the comparable calendar quarter of 2019, the employer will be considered an Eligible Employer. Due to the necessity to demonstrate a higher than 50% reduction in gross receipts, the requirements for 2020 may be more difficult to meet.
Enhanced Benefits
The number of full-time workers needed to qualify for the ERC was increased to 500 or less in 2021. Before this, only hotels and restaurants with 100 or fewer full-time employees (as determined, on average, in 2019) qualified for the maximum benefits allowed under the ERC calculations.
Credit Rate
- 2020 Credit: 50% of each employee’s eligible salary (including healthcare benefits paid by the employer) paid to each employee. The maximum amount of eligible pay per employee is $10,000.
- 2021 Credit: 70% of the eligible wages (including healthcare benefits paid by the employer) earned to each employee, per quarter, for the first, second, and third calendar quarters. The maximum eligible pay per employee is $10,000 per quarter.
PPP Loan and RRF Recipients
Businesses that have received loans through the Paycheck Protection Program (“PPP”) are also eligible for the ERC. When the ERC was initially approved as a part of the CARES Act, it was legally prohibited for any organization to apply for an ERC if it got funding through PPP.
When the ERC was later extended and improved as part of the Consolidated Appropriations Act in December 2020, the statutory restriction against PPP users claiming ERC benefits was lifted. The IRS stated in August 2021 that while calculating eligibility, neither PPP loans nor Restaurant Revitalization Funds (“RRF”) should be included in the definition of gross receipts.
Owners of hotels and restaurants must think about checking whether they qualify for the ERC. Many organizations are collecting considerable cash benefits in addition to PPP benefits already received due to the significant number of government orders restricting normal activities in 2020 and 2021.
Have any questions? Our support team is here to help you with any questions or issues you might have. We take care of the hard work, so you never have to worry about it! Our team of professionals works to ensure that your company receives the full ERC credit it is entitled to. Contact us to find out more about ERC credits and how we can assist you.