May A Large Eligible Employer Treat The Wages Paid To Hourly And Non-Exempt Salaried Employees For Hours For Which They Are Not Providing Services As Qualified Wages For Purposes Of The Employee Retention Credit? – #36 ERC IRS Notice 2021-20

Question #36:
May a large eligible employer treat the wages paid to hourly and non-exempt salaried employees for hours for which they are not providing services as qualified wages for purposes of the employee retention credit?

Found under the G. Qualified Wages section of the Employee Retention Credit (ERC) IRS Notice 2021-20 with updated guidance to help business owners follow the current ERC rules. 

The answer to question #36, May a large eligible employer treat the wages paid to hourly and non-exempt salaried employees for hours for which they are not providing services as qualified wages for purposes of the employee retention credit?, can be found below.

ERC IRS Notice 2021-20 Question #36:

G. Qualified Wages

May a large eligible employer treat the wages paid to hourly and non-exempt salaried employees for hours for which they are not providing services as qualified wages for purposes of the employee retention credit?

Yes, assuming the wages otherwise satisfy the requirements to be qualified wages. For a large eligible employer, wages paid to hourly and non-exempt salaried employees for hours that the employees were not providing services may be considered qualified wages for purposes of the employee retention credit. 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.

 The method that the large eligible employer would use to determine the employee’s entitlement to leave under the Family and Medical Leave Act would be a reasonable method for this purpose. Similarly, the method(s) that the Department of Labor has prescribed to determine the number of hours for which an employee with an irregular schedule is eligible for paid sick leave under the FCRA would be considered reasonable for this purpose.

It is not reasonable for the employer to treat an employee’s hours as having been reduced based on an assessment of the employee’s productivity levels during the hours the employee is working.

Wages paid by a large eligible employer to its employees for hours for which they provided services are not considered qualified wages for purposes of the employee retention credit.

Example 1: Employer G, a large eligible employer operating a manufacturing business, has several locations the operations of which are fully suspended during the second quarter of 2020 due to a governmental order. Employer G continues to pay hourly employees who are not providing services at the closed locations 50 percent of their normal hourly wage rates. Employer G also reduced headquarters’ administrative staff hours by 40 percent, but continues to pay them at 100 percent of their normal hourly wage rates. Employer G does not take the wages into account under sections 7001 and 7003 of the FFCRA.

 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 G 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 G 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 G 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.

Example 2: Employer H is a large eligible employer in the business of staging homes that are for sale. Employer H’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 H with periodic status updates about furniture that has been leased out and other administrative matters.

 Employer H continues to pay wages to employees as if they continued to work their typical work hours even though the employees cannot provide their normal services. Using a reasonable method, Employer H has determined that its employees are working 20 percent of their typical work hours. Employer H does not take the wages into account under sections 7001 and 7003 of the FFCRA. Employer H may treat 80 percent of the wages paid as qualified wages for purposes of the employee retention credit.

For more information about the Employee Retention Credit (ERC) IRS Notice 2021-20, visit the Internal Revenue Service (IRS) Department of the Treasury, official IRS.gov tax website.

Conclusion and Summary on May a large eligible employer treat the wages paid to hourly and non-exempt salaried employees for hours for which they are not providing services as qualified wages for purposes of the employee retention credit? – #36 ERC IRS Notice 2021-20

The answer to Question #36: “May a large eligible employer treat the wages paid to hourly and non-exempt salaried employees for hours for which they are not providing services as qualified wages for purposes of the employee retention credit?” was answered in detail above. It was found under section “G. Qualified Wages” in IRS Notice 2021-20. 

Leave a comment below if you have further questions on the Employee Retention Credit (ERC) or for clarifications on May a large eligible employer treat the wages paid to hourly and non-exempt salaried employees for hours for which they are not providing services as qualified wages for purposes of the employee retention credit?

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Cover Image Credit: Irs.gov / IRS Notice 2021-20 / Disaster Loan Advisors.