It has been an especially difficult couple of years for restaurants and hotels. The year 2020 was...
Franchise Restaurants: What is the Employee Retention Credit?
The Employee Retention Credit, commonly known as ERTC or ERC, is a certain financial detail that people are generally unaware of. Franchise restaurants, in particular, are eligible to benefit from the ERC for restaurants. However, due to widespread misinformation and lack of understanding on franchise owners’ end, these people miss out on potentially large amounts of money.
Do you want to find out if you are eligible for the Employee Retention Credit or want to gain information on the topic out of interest? Are you exploring the ERTC incentive? Read this article, and you will have a clear idea about the ERTC and its benefits.
Why was the ERTC Setup?
To understand the details behind the Employee Retention Credit, you need an understanding of its purpose. Over the last two years, the COVID-19 pandemic has strongly disturbed the operations and functionality of significant service providers, particularly restaurants. Before the COVID outbreak, the restaurant sector, top food franchises, in particular, served as major employers amongst the private sectors. Since then, these numbers have sharply dwindled due to economic uncertainty and instability in the sector.
To support stakeholders suffering from these circumstances, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was introduced and implemented by Congress. Under this Act, federally regulated incentives like the ERC were offered to franchisees, giving them the necessary financial aid to stabilize their businesses. Restaurant owners have failed to fully understand the nuances behind the ERTC and subsequently have failed to use it. Initially, franchisees could either claim the Payment Protection Program or the ERTC: both are a part of the CARES Act.
As the PPP was more advantageous, most owners opted for it. A later modification allowed restaurant owners to claim federal incentives to support employee wage bills. Many owners remained unaware of this change and missed out on the benefits of the ERTC.
How Much Employee Retention Credit Can You Get?
When initially implemented under the CARES Act, refundable Employee Retention Credit was set at 50% of the qualifying earnings restaurant owners paid to their employees. Since then, franchisees who remained eligible for the ERTC in 2021 were allowed to claim 70% of qualified employee wages. In numerical terms, $10,000 are currently allowed under the Employee Retention Credit per employee for a quarter.
Almost all organizations can claim the Employee Retention Credit, including tax-exempted organizations. The only exemptions to included organizations are:
- Local and state governments
- Local and state government agents
- Smaller organizations taking small business loans
Qualifying for the ERTC
A few details can clarify whether a franchisee qualifies to claim the ERTC for restaurants. Many franchise owners were under the impression that they needed to show a downward trend in revenue generation to be eligible for the Employee Retention Credit: less than 50% gross revenue compared to the same calendar quarter in 2019. Once this requirement is met, a franchisee will continue to benefit from the ERTC until their gross revenue exceeded 80% of the same quarter in 2019.
However, this is not the only criteria a restaurant owner needs to compare themselves against to qualify for the ERTC. COVID-related protocols brought many changes to restaurant operations. If franchisees experienced any of the following disturbances to their operations, they could be eligible for the Employee Retention Credit.
- Changes in daily operations
- Full or partial shutdown instructions, government-enforced
- Decrease in consumption of services
- Compromise in capacity limits
- Hindrance to the supply chain
For businesses with multiple franchises, even if one franchise experiences some disruption while the others continue to operate at full capacity, all the branches can potentially be eligible to claim the ERTC.
Are you ready to take advantage of this great opportunity? Talk to a TPG Specialist today! Call 909.724.4401 and learn more about the ERTC Program.
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Significance of the ERC: An Example
To further understand how Employee Retention Credit can support franchisees, let us look at one example of a Texas-based franchise owner. The said franchisee had 3 restaurants, with 54 employees under his wage bill. The restaurant owner had claimed the Paycheck Protection Program, and revenue did not decline for the franchisee. This led him to believe that he was not eligible for claiming the ERTC.
However, all three branches were impacted by COVID restrictions. Social distancing protocols meant that the restaurants could not operate at full capacity. This classifies as disruption of regular business operations; hence the franchisee was applicable for the ERTC across all his restaurants. Since the ERC provides credit as a refund on the wages paid to employees, this franchisee was eligible for $462,000 for 54 employees over a said period while the restaurants’ functionality was compromised. As mentioned earlier, this could apply even if only one of the 3 restaurants experienced hindrances due to COVID restrictions.
The Employee Retention Credit And Paycheck Protection Program
Through the short course of the ERTC’s existence, much confusion has been caused due to both the ERTC and the PPP being part of the CARES Act.
When applying for the PPP, franchisees can also apply for the ERTC on revenue that is not spent on payroll expenses. Restaurant owners can explore their payroll expenses to check if they can secure a 10% PPP debt waiver and boost their ERTC. It is also possible for these business owners to declare up to 40% of eligible non-payroll expenses in their PPP forgiveness applications.
Although initial legislation did not allow the PPP and the ERTC to be claimed by a single franchisee, the procedure has changed since then. Both benefits are now available for restaurant owners.
Why You Should Not Miss Out On the ERTC
Creating awareness about the ERTC and its benefits for restaurant owners can be instrumental in helping franchisees recover from the COVID pandemic’s setbacks. A significant number of reimbursements can be offered to restaurants, depending on the employees they have qualifying quarters.
The Employee Retention Credit filings can also be further optimized to make the federal incentive more useful. Restaurant owners eligible for the ERTC should look into the details of the ERTC and what it offers to obtain maximum value from an extremely useful benefit. Many franchisees have missed out on a decent amount of reimbursement money due to a lack of information: know about the ERC and avoid being one of them.