Employee retention credit and "not providing services"

Technical topics regarding tax preparation.
#1
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Hello fellow tax preparers !!

If a company has 5 employees is the requirement to obtain the credit contingent on payment them while they are not providing services?
As previously noted, section III.G. of Notice 2021-20 provides rules for
determining qualified wages. The specific circumstances in which wage payments by
an eligible employer will be considered qualified wages depend, in part, on the average
number of full-time employees an eligible employer employed during 2019. For
purposes of the employee retention credit for 2020, for an eligible employer with an
average number of full-time employees3 greater than 100 during 2019 (2020 large
eligible employers), qualified wages are the wages paid to an employee for time that the
employee is not providing services due to either (1) a full or partial suspension of an
employer's business operations due to a governmental order, or (2) the business
experiencing a significant decline in gross receipts. For purposes of the employee
retention credit for 2020, for an eligible employer with an average number of full-time
employees not greater than 100 during 2019 (2020 small eligible employers), qualified
wages are the wages paid with respect to any employee during any period in the
calendar quarter in which the business operations are fully or partially suspended due to
a governmental order or during any calendar quarter in which the business is
experiencing a significant decline in gross receipts.

Thanks,


At
 

#2
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No.
 

#3
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HI Terry, Thank you, and I hope you are having a good tax season !

I find this language "not providing services" which I believe is only a condition for large employers to be very vague. For example, I have a hardware chain of 600 employees, how is anyone going to say that I did not keep people on and just doing nothing when in fact they were working. "Yes they were back in the warehouse, but there was nothing for them to do. "
or " I guess they were really only working 2 hours out of a 8 hour shift." How is not providing services defined. The only clear distinction is if I sent the employees home and continued to pay them, then clearly they are not providing services. In this case it is as if the hardware chain is a private unemployment insurance.

My best,

Art
 

#4
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That's exactly right, it's only for large employers. In 2021 that would be average of 500 employees. The IRS does give you an idea of its meaning in their Q&A. This was helpful:

Q&A 54
Example 1: Employer T, a manufacturing business, that averaged more than 100 full-time employees in 2019, has several locations that are closed during the second quarter of 2020 due to a governmental order. Employer T continues to pay hourly employees who are not providing services at the closed locations 50 percent of their normal hourly wage rates. Employer T also reduced headquarters' administrative staff hours by 40 percent, but continues to pay them at 100 percent of their normal hourly wage rates. For employees who are not providing services due to the closure of their location, but are receiving 50 percent of their normal hourly wage rates, Employer T may treat the wages paid as qualified wages for purposes of the Employee Retention Credit. For the administrative staff whose hours were reduced by 40 percent, but who are paid for 100 percent of the normal wage rate, Employer T may treat the 40 percent of wages paid for time that these employees are not providing services as qualified wages for purposes of the Employee Retention Credit. The 60 percent of wages that Employer T pays the administrative staff for hours during which the employees are actually providing services is not considered qualified wages for purposes of the Employee Retention Credit.
 

#5
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For an employee who does not have a fixed schedule of work, the hours for which the employee is not providing services may be determined using any reasonable method.

Example 2: Employer U, in the business of staging homes that are for sale, averaged more than 100 full-time employees in 2019. Employer U's non-exempt salaried employees cannot perform their usual services of delivering and installing furniture to be used in staging houses because open houses are prohibited in its service area during the second quarter of 2020. However, the employees are required to provide Employer U with periodic status updates about furniture that has been leased out and other administrative matters. Employer U continues to pay wages to employees at their normal rates even though the employees cannot provide their normal services. Employer U has determined that its employees are working 20 percent of the time. Employer U is entitled to treat 80 percent of the wages paid as qualified wages and claim an Employee Retention Credit for 80 percent of the wages paid.
 

#6
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Yours is a very good question and I don't recall ever coming across anything that speaks directly to it. These post don't provide anything you can hang your hat on. I'm just posting to affirm that your rightly confused. One could argue, probably very effectively, that not providing services could mean at home living their normal lives and that standing ready, or on stand-by, means they are available, and that being available is a service. As the following examples continue to show the IRS only considers methods that strive to determine how much time a person is actually doing something or otherwise at home not working.

Example 1: Employer V, a large fitness club business that employed an average of more than 100 full-time employees in 2019, closed all of its locations in City B by order of City B's mayor. Employer V continues to pay its exempt managerial employees their regular salaries. While the clubs are closed and there is not sufficient administrative work to occupy the managerial employees full-time, they continue to perform some accounting and similar administrative functions. Employer V has determined, based on the time records maintained by employees, that they are providing services for 10 percent of their typical work hours. In this case, 90 percent of wages paid to these employees during the period the clubs were closed are qualified wages.

Example 2: Employer W, a large consulting firm that employed an average of more than 100 full-time employees in 2019, closed its offices due to various governmental orders and required all employees to telework. Although Employer W believes that some of its employees may not be as productive while working remotely, employees are working their normal business hours. Because employees' work hours have not changed, no portion of the wages paid to the employees by Employer W are qualified wages.
 

#7
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Terry Oraha wrote:
Example 2: Employer W, a large consulting firm that employed an average of more than 100 full-time employees in 2019, closed its offices due to various governmental orders and required all employees to telework. Although Employer W believes that some of its employees may not be as productive while working remotely, employees are working their normal business hours. Because employees' work hours have not changed, no portion of the wages paid to the employees by Employer W are qualified wages.[/i]


I thinnk this example suggests that working condition changes (regard to inefficiencies and productivey) don't qualify.

The other thing is that for purposes of a reasonable method a method (or methods) the employer uses to measure exempt employees' entitlement to leave on an intermittent or reduced leave schedule under the Family and Medical Leave Act, or the method the employer uses to measure exempt employees' entitlement to and usage of paid leave are allowable reasonable methods. I bet in there you will find what not providing services means. I don't think it's going to be favorable. If you don't get an answer there would the term for employement law purposes, generally, give us an answer?
 


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