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Debunking 5 Common Myths About the Employee Retention Credit

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If you’re a salon professional who’s been concerned about receiving financial assistance over the last few months, you’ve likely heard of the Employee Retention Credit (ERC) — or at the very least heard the words thrown around in conversation. But chances are, much of what you’ve probably heard is wrong. 

Since the Employee Retention Credit was first established under last year’s Coronavirus Aid, Relief, and Economic Security Act (or CARES Act) as a way to support businesses in keeping their employees on their payroll, so much misinformation has been floating around the program, specifically in regards to who qualifies and how to apply. Sadly, these mistruths have led many salon and barbershop owners to automatically assume that they will not qualify for this refundable payroll tax credit, so they never apply and ultimately end up leaving thousands of dollars on the table (up to $33,000 per employee, to be exact) — money that the federal government specifically set aside to help their businesses survive during these trying times. And, what makes it even worse is that unlike PPP loans, these federal funds wouldn’t have to be forgiven or paid back to the government — the money would be theirs, free and clear.

Thankfully, the Professional Beauty Federation of California is doing their part to ensure these funds make it to right where they belong: in the hands of salon and barbershop owners. Following a successful partnership that has already helped over 10,000 salon pros receive forgivable PPP loans, the organization has teamed up once again with Adesso Capital to help guide the salon industry in rightfully claiming their Employee Retention Credit. Their expert team will not only help calculate the maximum amount that employers are entitled to under the law, but will also do all of the necessary filing on their behalf to ensure the entire process is seamless. And, despite the PBFC being a California-based organization, this ERC service that they offer—much like their prior PPP assistance program—is available to salon industry employers nationwide!

“Much like our unprecedented effort with PPP, we discovered most of our industry stakeholders who were likely eligible for ERC weren’t even aware of this additional federal relief opportunity. And even among those who had heard of ERC, they were misled into believing it didn’t apply to their salon or beauty school business,” said Fred Jones, PBFC Legal Counsel and Advocate. That’s why we renewed our partnership with Adesso Capital to create a nationwide, online portal with a streamlined process to guide beauty industry employers throughout the entire process to ensure they all benefited from these considerable tax credits. And given Adesso’s experience with PPP and ERC applications, we will be able to maximize our industry’s legally entitled returns. The PBFC found a need and are filling it to lift our beloved industry during these difficult times.”

And, if there were any doubts about the PBFC’s ability to help salon pros, just consider the case of four-chain Fantastic Sams’ franchise owner David Nelson. Nelson had no clue he was even entitled to any funds set aside by the federal government, let alone how to even amend his quarterly 941 tax form to apply. But, with some assistance from the PBFC team, he was able to qualify for over $180,000 in ERC payments.

“If it wasn’t for the PBFC, I would’ve believed what my trusted financial adviser and others in our industry had told me, namely that my salons didn’t qualify for this new ERC funding or that it would be so little as to not be worth the hassle,” said Nelson. “Thankfully, I decided to trust the PBFC’s advice and went to their online portal. From there, I had a pleasant telephone conversation with one of their partner’s representatives who answered all of my questions. And after having their internal CPAs evaluate my payroll and PPP financials, he called me the next day with incredible news: I qualified for tens-of-thousands of dollars more than I had dreamt possible.”

With so much new and conflicting information being passed around about the ERC, it can be hard for salon pros to know what’s really real, resulting in them potentially missing out on the opportunity to receive much-needed financial relief due to a simple lack of understanding. To help set the record straight, The Tease has teamed up with the PBFC to identify—and debunk — the most common myths surrounding the ERC.

 Ahead, we weed through five of the biggest misconceptions about this incredible payroll funding opportunity for salon and barbershop owners.

Myth #1: If I was eligible for this federal relief credit, then my accountant or bookkeeper would’ve informed me and applied on my behalf.

NOT TRUE!

A recently released report from a CPA continuing education organization found that 75 percent of employer filings failed to even apply for ERC for their eligible clients. And, even amongst those CPA’s who applied for their employer-clients, many greatly short-changed the amount their clients were legally entitled to receive, particularly for those clients who received PPP.

Myth #2: A salon must show a 50 percent loss in revenue to qualify for ERC.

NOT TRUE!

While true under the originally signed CARES Act of 2020, the new Congress and President Biden made significant and broadening changes to eligibility standards. A salon must now only show either a 20 percent decrease from pre-pandemic periods or that their business was under some sort of government ordered restriction (even if they can’t show any loss of revenues). To be an eligible employer for the ERC, you only need to meet one of these tests—meaning you could have an increase in revenue and still qualify!

Given the ever-present lockdowns and capacity limitations placed on salons, barbershops, spas, and beauty colleges during the height of Covid in 2020 and early 2021, nearly all industry employers should qualify under these new broadened qualifications.

Myth #3: If I received PPP, then I am not eligible for ERC.

NOT TRUE!

Again, under the original law this was true, but not any more. The twice-amended CARES Act removes this prohibition for ERC eligibility. However, an employer cannot “double-dip” by using the same payroll expenses toward both the ERC and forgiveness of your PPP loans.

The laws governing this section of the program can be highly complex which is why it is so important to work with an organization like the PBFC to understand how they apply to you. Given how experienced the Beauty Federation’s team is with helping salon pros with PPP loan applications, they ultimately have the technical expertise to help PPP recipients adjust their forgiveness calculations to maximize their potential ERC returns.

Myth #4: I can only receive a maximum of $5,000 per employer for ERC.

NOT TRUE!

While the original ERC law capped employers to $5,000 per employee for 2020, the updated law extended the benefit into 2021 and raised the potential credit to $7,000 per employee, per quarter. This means industry employers may qualify for up to $19,000 for each employee now, and an additional $14,000 by the end of the year. That’s potentially $33,000 per employee by the end of this year!

Myth #5: I need to document that each employee worked at least 30 hours a week.

NOT TRUE!

This myth is based upon a conflation of federal laws that are totally unrelated to ERC eligibility standards, which has wrongly been perpetuated by far too many ignorant CPAs, bookkeepers, and payroll companies.

The Bottom Line

With COVID restrictions likely to resume as a result of the infectious Delta variant’s continued spread, it is vital that our hard-hit industry take advantage of the additional assistance provided by the ERC. Salon and barbershop owners can immediately begin applying —even retroactively to 2020— for these federal funds.

For more information on how to apply or to speak with an experienced professional to evaluate employer qualifications, please pay a visit to www.federationplans.com/ERC.

Camille Nzengung
Camille Nzengung
Camille Nzengung is a Features Editor, based in Georgia, covering all things hair at The Tease. You can find her writing about the best hair products, the coolest hair trends, and all the exciting new hair launches.