Using the Employee Retention Credit to help build resilient supply chains

Manufacturers that have experienced losses in revenue and other business disruptions from the pandemic can seek relief in a tax reduction, the Employee Retention Credit. Beyond using it to make up for past losses, astute manufacturers can use this opportunity to reinforce their supply chains to be better prepared for the next disruption. Getty Images

Over the 16 months from March 2020 to the present time, 94% of Fortune 1000 companies have had to deal with supply chain disruptions. Whether it’s a global pandemic, natural disaster, shipping disruption, or any other industry-shaking disturbance, such events have taught us that manufacturers must always prioritize resiliency within their supply chains.

After living and working through the pandemic, business owners should start gathering the capital and talent necessary to pinpoint any vulnerability to changes in the economy or potential losses to constantly move towards a more resilient supply chain model. We are still seeing main shortages across various industries because of the lingering effects of the pandemic. The supply of lumber, steel, and many other commodities—well, nearly all other commodities—is still low.

We must reflect on the past year to ensure not only that the manufacturing sector bounces back from the last year, but that we have a safety net moving forward to overcome any hardships that our economy endures. A report from the McKinsey Global Institute showed that major supply chain disruptions that last a month or more are occurring every 3.7 years.

Manufacturing is the backbone of the U.S. economy, so Congress and industry leaders are coming together to ensure that manufacturers are equipped with the support they need to continue to deliver goods and services to Americans no matter what is going on in the world.

To bolster this industry, efforts are being streamlined under the new administration to implement a $1.9 trillion dollar COVID-relief bill. One of the most exciting new incentives for manufacturers approved in this legislation is the Employee Retention Credit.

The Employee Retention Credit

Initially introduced in the CARES Act, Congress expanded eligibility and increased the benefit tied to the Employee Retention Credit in the Consolidated Appropriations Act of 2021. Now more business owners can claim the Employee Retention Credit and loop in more employees to increase the amount of credits they receive.

The goal is for manufacturers to continue or increase operations as the pandemic abates by holding onto their profits, hiring more employees, and investing in new business opportunities with the money saved or earned by claiming the Employee Retention Credit. In a nutshell, manufacturers can reduce or eliminate their payroll tax each quarter and potentially cash in on a large refund, providing them the means to invest in recruiting or retaining technical talent and building new relationships with suppliers and vendors on American soil.

In today’s climate, a major goal of the Employee Retention Credit is to equip business owners with funding to invest in their businesses and strengthen their supply chains domestically. Nearly every manufacturer’s supply chain links to an array of vendors and small to medium-sized businesses to deliver a finished product that our country’s economy and infrastructure need. If a supply chain is resilient, every business involved will benefit for the foreseeable future.

How to Qualify

The following business disruptions can qualify a manufacturer for the Employee Retention Credit:

• Full or partial shutdowns due to government-mandated restrictions
• A decrease in output of products or services because of the pandemic
• Interruption to, or modification of, business operations
• Supply chain delays and interruptions
• Any inability to work with vendors and distributors either domestically or internationally

If any of the above disruptions hindered or altered your capacity to operate in any way, your business likely will qualify. Another way to qualify for the Employee Retention Credit is experiencing a loss in revenue, which often goes hand in hand with these common business disruptions.

A manufacturer in New Jersey experienced a partial shutdown after being forced to limit the workplace capacity to 50% because of a government order. This caused a halt in performing routine and preventive service for its maintenance contracts. Service techs and other crucial roles were at a standstill, but this company was able to claim more than $265,000 in credits thanks to the Employee Retention Credit.

In Indiana, another manufacturer’s projects were delayed, which increased its administrative costs and overhead time. It claimed more than $485,000 in credits.

Start Small to Help Reap Big Returns

The overarching goal is to encourage our people to seek jobs that will literally rebuild our supply chains and restore the nation’s productive capacity, a core goal of the new administration’s infrastructure plan and recent COVID-relief legislation. In the meantime, manufacturers should take advantage of this lucrative tax break while it is available.

The Employee Retention Credit is Congress’s investment in the economy. Not only will it expedite the recovery and growth of each individual business, but it’s sure to create a domino effect of growth that will spread to other businesses, especially those up and down the supply chain. From there, the benefits are likely to spread laterally, carrying improvements to other industries. Focusing on domestic suppliers and distributors will help to enhance and concentrate the benefits to businesses here at home.