An employer may be able to claim a full or partial suspension of operations due to a governmental order that affects its supplier, but only if certain criteria are met. These criteria include the supplier's ability to deliver critical goods as a result of a governmental order, the employer's ability to obtain critical goods from another supplier, and the impact on the business if it cannot obtain these critical goods. It's important to note that all three of these factors must be present for an employer to claim a suspension.
Can a business qualify for the employee retention credit (ERC) if it experiences a supply chain disruption?
To meet the first criterion, the employer must identify a governmental order that directly affects the supplier's ability to deliver critical goods. This could be any order, proclamation, or decree from a federal, state, or local government that relates to the suspension of the supplier's trade or business and limits commerce, travel, or group gatherings due to COVID-19. For example, an order requiring non-essential businesses to close for a certain period would meet this criterion, as long as the supplier is considered non-essential. However, non-binding recommendations, broader supply and demand issues, and even enforceable mask mandates are not considered when determining if a full or partial suspension of operations is warranted.
The second criterion, the employer's ability to obtain critical goods from another supplier, should also be considered. Disruptions to the supply chain due to employee shortages, increased demand for raw materials, foreign governmental orders, and broader economic factors should not be taken into account when determining if a supply chain disruption qualifies a business for an Employee Retention Credit (ERC).
Finally, the business's inability to obtain critical goods must have a significant impact on its operations. Keep in mind that under a partial or full suspension of operations, qualifying wages for an ERC are limited to wages paid to employees during the period when the relevant governmental order is in effect. Temporary disruptions to a supplier's operations at the start of the pandemic would not automatically qualify a business for subsequent quarters, limiting the potential wages that can be claimed for a refund.