When it comes to employee retention, there are two main types of programs. Both have their own unique benefits and drawbacks that you should be aware of before deciding which one is right for your company.
According to the U.S Bureau of Labor Statistics, over 4 million people quit their job in January of 2022. That’s a very steep number and employee retention can help mitigate this.
In this blog post, we will discuss the differences between employee retention credit vs PPP so that you can make an informed decision about which program is best for your organization!
Keep reading to learn more about this important business topic to secure the future of your employees.
Employee Retention Credit: What Is It?
So what is employee retention credit? The employee retention credit is a refundable tax credit that is available to eligible employers who retain their employees during the COVID-19 pandemic.
To be eligible, employers must have witnessed either a reduction in gross receipts of more than 50% when compared to the same quarter in the prior year. Click here to learn more.
Alternatively, they must have been required to suspend operations due to government orders related to COVID-19. The credit is equal to 50 percent of qualified wages paid to eligible employees, up to a maximum of $5,000 per employee.
Employees must have been employed by an eligible employer on March 13, 2020, and they must have been paid for working time that was not subject to a leave of absence to be eligible. Wages paid after March 12, 2020, but before January 1, 2021, are considered qualified.
Paycheck Protection Program: What Is It?
So what is PPP? Well, the Paycheck Protection Program (PPP) is a loan program that was created by the CARES Act with the intention of helping small businesses keep their workers employed during the COVID-19 pandemic.
The loans are 100% federally guaranteed and can be forgiven if the borrower meets certain criteria, such as using the loan proceeds for payroll costs, rent, mortgage interest, or utility payments.
Furthermore, PPP loans can be used for other business-related expenses, such as employee training, advertising, and professional services. This means that the PPP offers more flexibility than the employee retention credit when it comes to how businesses can use the loan proceeds.
To be eligible, businesses must have fewer than 500 employees and they must have witnessed a decline in gross receipts of more than 25% when compared to the same quarter in the prior year.
Employee Retention Credit vs PPP
Albeit, both programs address the same issue-employee retention- there are several key differences that set them apart. Perhaps the most notable difference is the fact that the PPP offers more flexibility when it comes to how businesses can use the loan proceeds.
Additionally, businesses must have recognized a decline in gross receipts of more than 25% when compared to the same quarter in the prior year to be eligible for the PPP.
Whereas, they must have seen a reduction in gross receipts of more than 50% when compared to the same quarter in the prior year to be eligible for the employee retention credit.
Now that you know a little bit about each program, let’s take a look at some of the key differences between them:
Eligibility Requirements
The employee retention credit is available to employers who have developed a minimization in gross receipts or have been required to suspend operations due to government orders related to COVID-19.
To be eligible for the PPP, borrowers must have been in operation on February 15, 2020, and must have paid salaries and payroll taxes.
Wages Covered
The employee retention credit applies to all wages paid to eligible employees, up to $5000 per employee. The PPP, on the other hand, covers payroll costs, rent, mortgage interest, and utility payments.
Loan Forgiveness
Up to 100% of the loan amount can be forgiven if it is used for eligible expenses (such as payroll costs) and certain criteria are met. There is no loan forgiveness with the employee retention credit.
Tax Implications
The employee retention credit is a refundable tax credit, meaning that it will reduce your tax liability dollar-for-dollar. The PPP loan does not have any tax implications.
Repayment Terms
There is no set repayment schedule for the employee retention credit. PPP loans must be repaid over a two-year period, with a 0.50% interest rate.
As you can see, there are several key differences between the employee retention credit and the PPP loan program. It’s important to understand these differences so that you can decide which program is best for your business.
Common Mistakes Made by People Using These Opportunities
Even though the employee retention credit and PPP loan program were created with good intentions, there have been some problems with how they’ve been implemented. Here are some of the most common mistakes that people make when using these programs:
Applying for Both
You can’t receive benefits from both the employee retention credit and the PPP loan program for the same wages. If you do, you’ll have to repay the excess amount.
Failing to Track Expenses
It’s important to keep track of all your expenses. This is so that you can properly document them when it comes time to apply for forgiveness.
Applying for Too Much Money
Be sure to accurately estimate how much money you need before applying for a loan. Applying for too much money can result in a higher interest rate or stricter repayment terms.
Not Reading Fine Print
Be sure to read all the details of the program before applying. There may be some requirements that you’re not aware of, which could result in your loan being denied.
Now that you know more about the employee retention credit and PPP loan program, you can decide which one is right for your business.
Employee Retention Done Right
If you take the time to understand the employee retention credit vs PPP loan program, you can make sure that your business is getting the most benefit possible.
Be sure to read all the requirements and details before applying, so that you don’t make any mistakes. With careful planning, these programs can be a great help to your business.
If you’re interested in learning business optimization, check out some of the related articles on the sidebar or down below.
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