A Case Study of the Employee Retention Tax Credit
The Employee Retention Tax Credit can be a very useful rebuilding tool for many of the hotels and restaurants in the US. What follows is a typical case study of how the credit works. The Bread Basket is a family style restaurant that has two locations. Each location is roughly the same size, and has family style seating able to accommodate 250 guests. The staff of each restaurant consists of a mix of cooks, wait staff, hosts, and managers, totaling about 14 people per day. They serve a wide variety of home-style food in a casual atmosphere, and even have a bakery case where they sell their famous muffins and desserts a-la-carte. Customers appreciate the good food, generous portions, and reliable service as well as early morning specials for weekday breakfasts.
The Bread Basket’s business has suffered since the pandemic. The Governor of their state shut down the business in March of 2020 for in-person dining, eventually opening to outdoor dining, and then to limited-capacity indoor dining progressively. Since they are located close to a 6 lane highway next to a traffic circle, they were not well suited for outdoor dining, though they did their best. It’s hard to hear across a table when an 18-wheeler is rumbling along, or even idling at the traffic light only a few yards away. They were unable to sell their muffins and desserts from the case as well, as new patrons wouldn’t be able to be tempted by the display. This, along with other factors common to everyone during the pandemic seriously limited their ability to do business the way they would have under normal conditions. Thankfully they survived, in large part to take out orders. They also claimed both rounds of Payroll Protection Loans, each totaling about $40,000. They received the first in April of 2020, and the second in February of 2021.
Since March of 2020, The Bread Basket has been paying employees like they always have, but have been limited by government mandate in the way they do their business. As a result, they qualify for the Employee Retention Tax Credit from the middle of March 2020 until the end of May 2021, which was when the governor lifted restrictions on restaurants.
Even though The Bread Basket staffs the restaurant at 14 people per day, they had to limit staff, especially wait staff during the pandemic. Through most of 2020, they only had 6-8 people working each day, and due to staffing shortages in 2021 only had about 10 working. It’s been getting better, but slowly. The PPP loans paid for 8 weeks of payroll in 2020 and 2021, but they still need more help.
Using the Employee Retention Tax Credit, The Bread Basket could save significantly more. Quarterly payroll for the restaurant is approximately $60,000. If we average out their earnings, and remove the PPP loans from the calculations, they should be owed an estimated $50,000 in Employee Retention Credit refunds for 2020. There are a lot of factors that go into this that might reduce the amount of refund. For example, the owner (who owns both restaurants 100%) is on the payroll for one of the restaurants, and cannot include her wages as eligible, as well as the wages of her family (spouse, kids) or ancestral family (siblings, parents). Also, with attrition and people coming and going, every employee is not going to have the chance to max out the tax credit.