Employee Retention Credit Updates

 

As noted previously, we’ve previously provided our customers with multiple updates and service bulletins to address ongoing issues. As an update, our ERC, which we implemented in the fall of 2017 to encourage our customers to upgrade to a new service provider, has not yet been adopted as widely as we hoped. In the fall of 2017, we made an initial deployment of our ERC to a small subset of our customers. In response to feedback, we identified areas of opportunity to improve the ERC so that it achieved greater adoption by our customers and became more valuable to our largest customers.

As a result of the early adoption, we have spent considerable time validating the rollout and refining the ERC. The ERC works to help our customers retain existing services as they switch to a new carrier by giving them a monthly subscription fee discount. As part of our testing, we have focused on making the value proposition of the ERC clear for our customers and have focused our initial deployment of the ERC on the most valuable types of customers (banks, credit unions, and large enterprise customers). We have had a number of discussions with our customers, and we believe that the ERC is clear and valued by our customers we believe that it is a strong contribution to our efforts to improve our service to our customers.

With the rollout of the ERC, we have seen a number of issues, including limited adoption among our largest customers. This has led us to provide customers with more clarification and definition of the ERC, as well as the ability to opt-out of the ERC if they prefer to. In addition, we have provided a number of refunds to customers that have been impacted by the ERC. It is important to note that, in many cases, customers opted out of the ERC before contacting us to provide feedback on the ERC. In these cases, we have either waived the subscription fees for those affected customers or provided refunds.

We believe these refunds have made the best use of our financial resources. As we prepare for a broader rollout of the ERC, we are continuing to work with customers on the rollout and are committed to making sure that the ERC is adopted by our customers in a fair and consistent manner. We continue to believe the value of the ERC for our customers will be better realized once it is widely adopted by our customers.

Internal Revenue Service (IRS) 2015

In September 2015, the Internal Revenue Service (IRS) announced that it would begin phasing in new credit for certain companies, called the ECR, and would replace a credit for companies that hired and retained certain low-wage workers (2.25%). At that time, the ECR was set to be phased in starting in 2017 for publicly traded employers. The ECR is scheduled to be phased in starting January 2017 for privately held employers, which includes sole proprietorships, partnerships, LLCs, and corporations that have total annual gross receipts of $50 million or less (where the companies are organized as “pass-through” entities).

Because the ECR phases in, the level of the ECR is determined annually by applying the 3.8% “base”-rate reduction from the Job Creation and Worker Assistance Tax Credit (J-CAT) to each of the amounts of the credit set to phase in (and for private sector sole proprietorships, limited liability companies and partnerships, any amount that phases in is 50% of the tax credit previously received under the J-CAT). To be eligible for the ECR, employers must hire and retain workers and agree to maintain the current payroll levels for the calendar year in which the new year begins. This proposal would permanently extend the ECR for the fiscal year 2018. This proposal would reduce the ECR for the fiscal year 2019 to $500,000.

Question: Does the ECR decrease the cost of hiring workers?

Answer: No, the ECR does not reduce the cost of hiring employees; the ECR simply replaces the J-CAT credit with a permanent, additional payroll tax credit. A company would not incur a cost associated with hiring someone if they did not have enough tax deductions from prior years. The reduced ECR is a permanent, one-time reduction in the tax rate for the company, based on a percentage of the payroll taxes they paid in the prior calendar year. Because a company has the right to defer bonus and incentive payments to new hires until tax time, the ECR effectively reduces the cost of bonus payments in an economic year for the company. The company would generally not incur a cost associated with hiring someone if it did not have enough deductions from prior years, because it had the right to defer bonus and incentive payments for future years until tax time. Therefore, the company would not incur a cost associated with hiring someone if it did not have enough deductions from prior years.

Question: What is the definition of “employees” under the ECR?

Answer: The ECR would allow a company to include unpaid family members as “employees” for the purpose of the ECR. A company could include a child who stays home to take care of the family, while working during the day or part-time to pay for college, as an employee of the company. A company could also include a niece or nephew who helps in the family business or is trained in the company’s trade or profession, as an employee of the company. This provision would not allow the company to treat the child as a sole proprietorship or partnership employee, nor would it allow the company to treat the child as a freelancer.