December 03, 2021- The pandemic has truly disoriented U.S. businesses to their core. It has forced firms to try to keep their businesses operating while complying with strict health protocols and standards. COVID has disrupted the supply chains of 94% of Fortune 1000 companies and according to the U.S. Census Bureau’s supply chain disruption survey, the manufacturing industry was the most affected sector.
To jumpstart recovery and reward businesses for retaining staff during the pandemic, the government revamped the Employee Retention Credit (ERC) for manufacturers as part of its Consolidated Appropriations Act of 2021.
The Employee Retention Credit (ERC) is very relevant to the manufacturing industry as it can completely remove a firm’s payroll tax liability and generate a cash refund if the company faced setbacks, such as supply chain concerns or capacity limitations, due to government orders.
ERC for Manufacturers in 2021: Why Manufacturers Stand to Benefit so much from this Credit
The pandemic has essentially disrupted the day-to-day commercial activity and distribution of goods and services across the entire country. These disruptions make manufacturers a prime candidate to benefit from the revamped Employee Retention Credit (ERC) in 2021, which is now available to many more businesses. The Consolidated Appropriations Act allows manufacturers to claim the ERC in 2021 alongside PPP.
Most manufacturers had to face one or more of the following disruptions while navigating the harsh economic realities of the pandemic:
- Full or partial shutdowns due to government-mandated restrictions;
- A decrease in products or service output because of the pandemic;
- Interruption to, or modification of, business operations;
- Supply chain delays and interruptions;
- Capacity limitations due to social distancing; and
- Inability to work or collaborate with vendors either domestically or internationally.
Manufacturers can claim the employee retention credit if their business was affected by any of these disruptions. Even experiencing a loss in revenue may make a manufacturer eligible for an ERC claim.
Value of ERC for Manufacturers
Regardless of their size, manufacturers should at least evaluate their eligibility for the credit by consulting an expert. If eligible, manufacturing businesses can claim credits worth up to thousands of dollars per employee. The benefits can offset or even eliminate payroll taxes each quarter and potentially deliver a cash refund. They can use the money to:
- Hire more employees;
- Restore their supply chain; and
- Rekindle relationships with vendors, and more.
Some businesses have immensely benefited from this incentive. For example, one of alliantgroup’s clients, an automotive component manufacturer, received a whopping $2.3 million in credits as their production scheduling was altered due to government mandates.
Another firm, a commercial and home exercise equipment manufacturer, suffered huge losses due to government orders during the pandemic. Due to health concerns, the government had ordered gyms to be closed, halting this firm’s business as they could not repair or install equipment. But with alliantgroup’s help, they were able to get $889,000 in credits after claiming ERC.
But is the ERC credit only for under-performing businesses? While the pandemic made it difficult for most companies, a few managed to go mostly unscathed, even turning profits in the past year. Congress wants these businesses to take ERC as well, so they can contribute more money back into the economy. The credit rewards those businesses that have retained staff and still conducted their daily activities amidst lockdowns. One of our clients, a home appliance manufacturer, managed to increase their revenue even with social distancing protocols and other health-related mandates. That client was still eligible to claim $518,000 in credits!
The Employee Retention Credit is a boon for manufacturers, giving American businesses the financial impetus, they need to engage in retaining employees, hiring talent and maintaining business relationships with local suppliers and partners. Manufacturing has long been the backbone of the American economy. Taking advantage of this fantastic incentive is only going to help them thrive and boost our country’s economy.