For Purposes of the Employee Retention Credit, when is a Business Considered “Fully or Partially Suspended Due to a Governmental Order”?

Article effective based on date written: May 12, 2020

For businesses struggling as a result of pandemic-related shutdowns, any form of stimulus may be vital to their continued existence.  When the CARES Act[1] became law, many businesses believed that the employer retention credits authorized by section 2301 would see widespread application.  Unfortunately, those impacted by COVID-19 may find some difficulty qualifying unless their gross receipts decline significantly.  Businesses and their advisors should carefully review recent guidance related to the interpretation of “full or partial suspension” as they may be able to qualify for the credit for unexpected reasons, including where shutdowns result in supply chain issues, where businesses operating in multiple jurisdictions are subject to suspension in one state or locality, and where affiliated businesses may be subject to full or partial suspension by governmental order.

In order to qualify for the employee retention credits – potentially up to $5,000 per employee – a business must be considered an “eligible employer.”  Pursuant to section 2301, an “eligible employer” means any employer carrying on a trade or business in 2020 in which one of the following conditions applies for at least one calendar quarter[2]:

  • The operation of the trade or business “is fully or partially suspended…due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus 2019”; or
  • The gross receipts for that calendar are less than 50 percent of the total for the same calendar quarter for the prior calendar year.[3]

While the CARES Act does not delegate any specific rulemaking authority relating to the employee retention credits to the Internal Revenue Service (“IRS”), that agency has taken primary responsibility for issuing guidance.  In that regard, the IRS has issued preliminary guidance regarding the credits in the form of nearly one hundred Frequently Asked Questions and, for limited issues, instructions to relevant forms.  With respect to the eligibility of employers under the full or partial suspension test, the following conclusions are asserted by the IRS within its FAQ[4]:

FAQ 30:  Essential businesses are not considered suspended if allowed to operate, even if the order suspends non-essential businesses, which affects an employer’s operations.


FAQ 31:  Essential businesses may be considered suspended if its suppliers are unable to make delivery of critical goods or materials due to an order, which causes the supplier to suspend operations.


FAQ 32:  Essential businesses are not considered suspended if they cease operations for the sole reason that its customers are subject to a stay at home order.


FAQ 33:  Where a workplace is closed by order but the business can continue comparable operations by requiring telework, the business is not considered suspended.


FAQ 34:  Where a workplace is closed by order for certain purposes, but permitted to remain open for others, the business is considered partially suspended.  This includes restaurants subject to dine-in closures and retailers only permitted to sell goods remotely.


FAQ 35:  Where a business reduces operating hours due to requirements of an order, the business is considered partially suspended.


FAQ 36:  Businesses operating in multiple locations that are subject to an order limiting operations in some, but not all, locations are considered partially suspended with respect to all locations.  It is not clear if the business is required to apply a uniform policy across jurisdictions to qualify under this rule.


FAQ 37:  Members of an aggregated group are treated as a single business for purposes of these tests.


FAQ 38:  Where an order is effect for only a portion of the calendar quarter, the business is eligible for that entire quarter but can only claim a credit for wages paid while the order is in force.


The IRS also provides guidance regarding what are considered “orders from an appropriate governmental authority.”  In particular, any order, proclamation, or decree from a federal, state, or local government  is included so long as it limits commerce, travel, or group meetings due to COVID-19 in a manner that would impact operation of the business, including orders limiting hours.[5]  On the other hand, declarations of a state or emergency, mere statements from government officials, comments during press conferences or interviews, and order not affecting a business do not rise to an order resulting in suspension for purposes of the credit.

While its application will vary based upon industry, jurisdiction, and facts specific to a business, those not specifically targeted by an order will generally have a difficult time qualifying for employee retention credits under the “fully or partially suspended test.”  Those businesses may still qualify under the reduction in gross receipts test.  Still, businesses not participating in the Paycheck Protection Program should consider all jurisdictions in which they operate to determine qualification.  For example, localized orders limiting the business’ hours of operations in one jurisdiction may render the wages as “qualifying” in all other jurisdictions.  And for businesses operating franchises within multiple jurisdictions, the qualification of one franchise may render all franchises eligible for the credit under the affiliation rules.  The impact of these orders could also render wages paid in subsequent periods as qualifying for purposes of the credit, even if governmental orders in certain jurisdictions have expired and no longer limit portions of operations.

Given the continuing political and economic uncertainty caused by COVID-19, these outcomes may be impacted by future legislation or administrative guidance.  Businesses impacted by these issues should consult with their advisors to determine qualification for the employee retention credits, to determine availability of other government stimulus benefits, and to properly plan a strategy to weather the continuing financial turbulence related to the pandemic.

These descriptions are intended for informational purposes only and should not be taken as legal advice on any particular set of facts or circumstances.  Rosenberg Martin Greenberg, LLP is experienced in all aspects of federal and state tax laws, legislative developments concerning the CARES Act, addressing prior compliance issues, white collar criminal litigation, and more.  For more information, please contact Brandon Mourges at 410.951.1149 or

[1] Coronavirus Aid, Relief, and Economic Security Act, H.R. 748, 116th Congress (2020).

[2] The credit only applies to “qualified wages.”  See section 2301(c)(3) of the CARES Act.  For eligible employers with over 100 full-time employees in 2019, the wages must be paid to an employee not providing services as a result of a governmental order.  For eligible employers with 100 or less employees in 2019, wages are not subject to this limitation (i.e., wages can be paid for services rendered and still qualify).  In either scenario, qualifying wages cannot exceed what would have been paid for the equivalent work during the 30 days prior (i.e., a bonus or raise would likely, at least partially, not be considered “qualified wages”).

[3] For employers who meet this threshold test, they continue to be eligible until the quarter after there gross receipts return to at least 80 percent of that from the prior year for the same quarter.

[4] See Internal Revenue Service, COVID-19-Related Employee Retention Credits: Determining When an Employer’s Trade or Business Operations are Considered to be Fully or Partially Suspended Due to a Governmental Order FAQS (“COVID-19 FAQs”) (April 29, 2020), available at:  Importantly, the IRS notes that the FAQs are not included within the Internal Revenue Bulletin and may not be relied upon as legal authority (and cannot be used to support a legal argument in litigation).

[5] See FAQ 28 of COVID-19 FAQs.