As of January 31, 2022, the employee retention credit is no longer available to employers. Businesses need to understand what this means for them and their teams.
This blog post will discuss employee retention credit and what employers need to do now.
We’ll also provide tips on how businesses can keep their employees happy and engaged.
What is the Employee Retention Credit?
The employee retention credit is a tax credit that started in 2017. It offered businesses a tax break for retaining employees for at least one year. The credit was available to employers in all 50 states and could be worth up to $1,000 per employee.
Businesses must file Form 8850 with the IRS to claim employee retention credit. The form was used to report the number of employees retained for at least one year. Companies could claim the credit for up to five employees so that the total credit could be worth up to $5,000.
The employee retention credit was available to businesses of all sizes, but it was especially beneficial for small businesses. Small companies often have a more challenging time retaining employees than larger businesses, so the credit offered valuable assistance.
Why was the employee retention credit extended?
The employee retention credit was supposed to end in 2020 but was extended until December 31, 2020, giving businesses an extra year to take advantage of the credit.
Why is the Employee Retention Credit beneficial for Small Businesses and Startups?
Small businesses and startups often have more difficulty retaining employees than larger businesses. This is because larger businesses typically have more resources and benefits. This can include things like healthcare, retirement plans, and paid leave.
Startups face more economic challenges than those working for larger companies. For example, they may have less job security or income stability, making it difficult to save money. Employee retention credit can help offset some of these challenges by giving businesses a financial incentive to retain employees.
Also, losing employees can be costly for small businesses. It can mean losing out on valuable skills and experience and being expensive to replace.
The employee retention credit was introduced to help small businesses overcome this challenge. It offered businesses a tax break for retaining employees for at least one year. Plus, the credit included valuable assistance in keeping employees happy and engaged.
What Can Employers Do Now?
Employers can do a few things now that the employee retention credit has expired to increase employees’ benefits outside of financial rewards. Here are four tips:
1. Offer incentives to retain employees: One way to keep employees happy and engaged is to offer them incentives for staying with the company. This could be a bonus, a pay raise, or equity in the business which can create more future wealth.
2. Promote employee growth: Another way to keep employees happy is to promote employee growth. This could involve allowing employees to learn new skills or take on new responsibilities.
Employers can guide employees to learn new skills by providing resources and opportunities for employee development. This could involve online courses, workshops, or even job shadowing opportunities. Employers can also help employees stay engaged and motivated by providing feedback and recognition for their efforts.
3. Encourage employee feedback: Employees want to feel like their opinions matter, so encourage them to provide feedback. This could be done through surveys or regular meetings with employees.
Employers can also help employees stay engaged and motivated by providing feedback and recognition for their efforts.
Employers can encourage employee feedback in meetings by asking questions and giving employees time to respond.
Employers can also create an environment where employees feel comfortable sharing their opinions. This could involve setting the tone for the meeting, providing an outline of what will be discussed, and respecting employees’ time.
4. Offer competitive benefits: Employees also value healthcare, retirement plans, and paid leave. These are called employee benefits and can be a deciding factor when choosing one job over another.
Offering competitive employee benefits can help employers attract and retain employees. This is especially true for small businesses and startups, which often have difficulty retaining employees compared to larger businesses.
The employee retention credit has expired, but that doesn’t mean employers can’t continue to provide benefits that encourage employee retention.
5. Celebrate employee accomplishments: Recognize employee accomplishments and celebrate employee successes. This could be done through awards ceremonies or simply by thanking employees for their hard work.
Here are some ideas for you to have in mind:
– an employee of the month/year
– awards ceremonies
– company newsletter
Employers should also consider using employee retention software to help them manage their workforce more effectively. This software can help businesses track tenure and identify employees at risk of leaving.
Why was the employee retention credit valuable?
The employee retention credit was valuable for businesses. Here are three reasons why:
1. It was a valuable tool and incentive for businesses since the credit offered them a tax break for retaining employees for at least one year.
2. The employee retention credit was available to businesses of all sizes: It was open to employers in all 50 states, and it could be worth up to $1,000 per employee. So, again, this made the credit accessible to businesses of all sizes.
3. The employee retention credit was especially beneficial for small businesses: Small businesses often have a more challenging time retaining employees than larger businesses, so the credit offered some valuable assistance.
What were employees eligible to claim the employee retention credit?
Employees who met specific qualifications were eligible to claim the employee retention credit.
To qualify, employees had to have been employed by the business for at least one year and remain used by the business for at least 12 months.
Which entities are considered single employers under the Aggregation Rules?
The Aggregation Rules state that businesses are considered single employers if they are related companies. This means that businesses can be related through common ownership, management, or labor relations.
For example, a parent company and its subsidiary are considered related companies. Additionally, a company and any of its associated entities are also considered a single employer.
How does an eligible employer claim the employee retention credit for qualified wages?
An eligible employer can claim the employee retention credit for qualified wages by filing Form 8855, Employer Credit for employee Retention, with their federal income tax return. The form must be filed within three months of the end of the tax year in which the wages were paid.
Additionally, an employer must include the employee retention credit amount on line 14a of their federal income tax return.
In anticipation of receiving the Employee Retention Credit, Eligible Employers can fund qualified wages by accessing federal employment taxes, including withholding taxes that are required to be deposited with the IRS and requesting an advance of the credit from the IRS for the amount of the credit that is not funded by accessing the federal employment tax deposits, by filing Form 7200.
For example, imagine a business that has been struggling to retain employees. To try and combat this, the business offers its employees additional benefits, such as employee recognition and awards ceremonies. Thanks to these additional benefits, the business can keep its employees for a different year, qualifying for the employee retention credit.
FAQs
Can I still apply for the employee retention credit in 2022?
No, the employee retention credit application expired at the end of 2020, despite some exceptions.
Will the employee retention credit be reinstated?
There is no definitive answer now as to whether the employee retention credit will be reinstated in the future. However, there is a possibility that it could be reintroduced in the future.
What types of Governmental Orders related to COVID-19 may be considered for the ERC?
Governmental Orders related to COVID-19 that may be taken into consideration for the employee retention credit include, but are not limited to:
– The Families First Coronavirus Response Act
– The CARES Act
– The Worker, Employer, and Student Relief from Economic Espionage Act
How do I claim my ERC credit?
To claim the employee retention credit, employers must complete Form 8994 and attach it to their tax return.
Do you have to repay employee retention credit?
If an employer terminates an employee within the first 12 months of employment, the employer may have to repay the employee retention credit.
Conclusion
Offering competitive employee benefits is one way to encourage employee retention. Other ways to retain employees include recognizing and celebrating employee accomplishments and using employee retention software to help manage the workforce.
The employee retention credit was valuable for businesses because it offered a tax break for retaining employees for at least one year and was available to employers in all 50 states.
Although the employee retention credit has expired, there are still ways that businesses can retain employees by providing competitive benefits and celebrating employee successes.
Now that the employee retention credit has expired, small businesses may have a tougher time retaining employees by focusing on financial benefits, but they still have plenty of opportunities.
