ERC Credit FAQ #34. If A Governmental Order Requires An Employer To Close Its Workplace For Certain Purposes, But The Workplace May Remain Operational For Limited Purposes, Is The Employer Considered To Have A Suspension Of Operations?

September 16, 2022 Leave a comment
ERC Credit FAQ #34. If A Governmental Order Requires An Employer To Close Its Workplace For Certain Purposes, But The Workplace May Remain Operational For Limited Purposes, Is The Employer Considered To Have A Suspension Of Operations?

Frequently asked question #34 “If a governmental order requires an employer to close its workplace for certain purposes, but the workplace may remain operational for limited purposes, is the employer considered to have a suspension of operations?” under the Determining When an Employer’s Trade or Business Operations are Considered to be Fully or Partially Suspended Due to a Governmental Order section of FAQs: Employee Retention Credit under the CARES Act, provided by the IRS.gov to help business owners understand the ERC program. Information is below for the question #34 If a governmental order requires an employer to close its workplace for certain purposes, but the workplace may remain operational for limited purposes, is the employer considered to have a suspension of operations?

ERC Credit Frequently Asked Question #34:

Determining When an Employer’s Trade or Business Operations are Considered to be Fully or Partially Suspended Due to a Governmental Order FAQs

34. If a governmental order requires an employer to close its workplace for certain purposes, but the workplace may remain operational for limited purposes, is the employer considered to have a suspension of operations?

Yes. If an employer’s workplace is closed by a governmental order for certain purposes, but the employer’s workplace may remain open for other purposes or the employer is able to continue certain operations remotely, the employer’s operations would be considered to be partially suspended.

However, if all of an employer’s business operations may continue, even if subject to modification (for example, to satisfy distancing requirements), such a modification of operations is not considered to be a partial suspension of business operations due to a governmental order, unless the modification required by the governmental order has more than a nominal effect on the business operations under the facts and circumstances.

Example 1: Employer F, a restaurant business, must close its restaurant to on-site dining due to a governmental order closing all restaurants, bars, and similar establishments for sit-down service. Employer F is allowed to continue food or beverage sales to the public on a carry-out, drive-through, or delivery basis. 

Employer F’s business operations are considered to be partially suspended because a portion of its business operations – its indoor and outdoor dining service – is closed due to the governmental order.

Example 2: Same facts as Example 1, except that two months later, under a subsequent governmental order, Employer F is permitted to offer sit-down service in its outdoor space, but its indoor dining service continues to be closed.

During the period in which Employer F is allowed to operate only its outdoor sit-down and carry-out service in accordance with the order, Employer F’s business operations are considered to be partially suspended because, under the facts and circumstances, a more than nominal portion of its business operations – its indoor dining service — is closed due to a governmental order.

The following month, under a further governmental order, Employer F is permitted to offer indoor dining service, in addition to outdoor sit-down and carry-out service, provided that all tables in the indoor dining room must be spaced at least six feet apart. 

Under the facts and circumstances, the governmental order restricting the spacing of tables limits Employer F’s indoor dining service capacity and has more than a nominal effect on its business operations.

During this period, Employer F’s business operations continue to be considered to be partially suspended because the governmental order restricting its indoor dining service has more than a nominal effect on its operations.

Example 3: Employer G, a retail business, must close its retail storefront locations due to a governmental order. The retail business also maintains a website through which it continues to fulfill online orders; the retailer’s online ordering and fulfillment system is unaffected by the governmental order.

Employer G’s business operations are considered to have been partially suspended due to the governmental order requiring it to close its retail store locations.

Example 4: Employer H, a hospital, is considered to be operating an essential business under a governmental order with respect to its emergency department, intensive care, and other services for conditions requiring urgent medical care.

However, the governmental order treats Employer H’s elective and non-urgent medical procedures as non-essential business operations and prevents Employer H from performing these services. Employer H suspends operations related to elective and non-urgent medical procedures.

Although Employer H is an essential business, Employer H is considered to have a partial suspension of operations due to the governmental order that prevents Employer H from performing elective and non-urgent medical procedures.

Example 5: Employer I, a grocery store, is considered to be operating an essential business under a governmental order. However, the governmental order requires grocery stores to discontinue their self-serve offerings, such as salad bars, though they may offer prepared or prepackaged food.

Employer I modifies its operations to close its salad bar and other self-serve offerings and instead offers prepackaged salads and other items. The governmental order requiring Employer I to discontinue its self-serve offerings does not have more than a nominal effect on Employer I’s business operations under the facts and circumstances, even though Employer I was required to modify its business operations.

Employer I’s business operations are not considered to be partially suspended because the governmental order requiring closure of self-serve offerings does not have more than a nominal effect on its business operations.

Example 6: Employer J, a large retailer, is required to close its storefront location due to a governmental order, but is permitted to provide customers with curbside service to pick up items ordered online or by phone. 

During this period, Employer J’s business operations are considered to have been partially suspended due to the governmental order requiring it to close its storefront location. Two months later, under a subsequent governmental order, Employer J is permitted to reopen its storefront location.

Under the subsequent governmental order, however, Employer J must enforce social distancing guidelines that require Employer J to admit only a specified number of customers into the store per 1,000 square feet. 

While the governmental order results in customers waiting in line for a short period of time to enter the store during certain busy times of the week, the size of Employer J’s storefront location is large enough that it is able to accommodate all of its customers after these short waits outside the store.

The governmental order requiring Employer J to enforce social distancing guidelines does not have more than a nominal effect on Employer J’s business operations under the facts and circumstances, even though Employer J is required to modify its business operations. 

During this period, Employer J’s business operations are not considered to be partially suspended because the governmental order requiring enforcement of social distancing guidelines does not have more than a nominal effect on its operations.

For more Internal Revenue Service (IRS) Department of the Treasury Employee Retention Credit (ERC) Determining When an Employer’s Trade or Business Operations are Considered to be Fully or Partially Suspended Due to a Governmental Order FAQs, visit the official IRS.gov tax website.

Conclusion and Summary on ERC Credit FAQ #34. If a governmental order requires an employer to close its workplace for certain purposes, but the workplace may remain operational for limited purposes, is the employer considered to have a suspension of operations?

The “If a governmental order requires an employer to close its workplace for certain purposes, but the workplace may remain operational for limited purposes, is the employer considered to have a suspension of operations?” is Frequently Asked Question #34 of many commonly asked questions small business owners are wondering about how to file the Employee Retention Tax Credit (ERTC). The IRS ERC Tax Credit program is a confusing and complex process to determine the correct ERC calculations your business qualifies for. Answers to “If a governmental order requires an employer to close its workplace for certain purposes, but the workplace may remain operational for limited purposes, is the employer considered to have a suspension of operations?” and filling out form 941-X may change slightly from frequently updated rules and regulations from the IRS. Leave a comment below if you have further questions on ERC Credit FAQ #34.

Help Completing / Filing / Claiming the Employee Retention Credit (ERC)

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Cover Image Credit: Irs.gov / ERC FAQ / Disaster Loan Advisors.

Mark Monroe
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