Much like every industry, the construction industry has seen and felt the effects of the COVID-19 pandemic. While most contractors may not be as financially impacted as other businesses, they are certainly not reaching the same levels of success that they had in 2019. To help rebound from the pandemic challenges, many contractors made adjustments to operate leaner and efficiently, and have taken steps to receive government funding in hopes of regaining balance throughout these uncertain times.

However, there are still obstacles that pose a threat—from labor shortages to supply chain issues—and construction companies are looking for ways to address these issues among many others. Meanwhile, it is crucial they take the necessary action to understand what exactly the relief programs have offered them and where they can go from here.

The Support: COVID Relief Programs

Paycheck Protection Program
The Paycheck Protection Program is a loan program administered by the U.S. Small Business Administration and has provided COVID-19 relief funding to small businesses during the pandemic. It was designed to provide a direct incentive for small businesses to keep their workers on the payroll. There were two rounds of PPP loans, and many businesses have now reached the end of their PPP2 covered period.

Most, if not all, contractors obtained PPP funding in 2020, although larger companies with a higher employee threshold were unable to obtain the support. A smaller number of contractors applied for and received the second round of PPP funding in 2021 as many had already experienced an uptick in business and could not provide the “good faith” certification necessary for the second round.

As businesses start to apply for forgiveness of their round two loan, they must keep in mind the rules and guidelines on eligible spending. To maximize forgiveness, businesses should ensure that 60% of allocated funds are allocated to payroll expenses while the remaining 40% can be used for rent, business mortgage interest, utilities, covered operations and worker protection expenditures, and certain eligible property damage and supplier costs. Both rounds of PPP closed to new applicants on May 31, 2021.

Employee Retention Credit
The more recent benefit available to businesses is the Employee Retention Credit (ERC), which has proven to be a significant inflow for contractors of all sizes. The ERC is a refundable tax credit against certain employment taxes. Businesses may be eligible to claim the Employee Retention Credit (ERC) for 2021 and amend to claim for 2020 as well.

Businesses around the country have been slow to evaluate eligibility, or quick to assume they are ineligible, for the ERC. The result: a significant amount of money is still being paid to the federal government when it could go to the small businesses that need it the most.

Even if the business qualified for the PPP First or Second Draw, the company may qualify for the ERC. However, qualifying requires a complex analysis. If this analysis has not yet been done, it is something to consider.

Additionally, businesses can requalify for the ERC every quarter. In fact, for those who were small enough, meaning they had under 500 employees during the 2019 measurement period, our experience has shown that almost all of our contractor clients have qualified for at least one quarter during 2021 thus far, if not more. The eligibility requirements and related benefit were much more restrictive during 2020, but many have still found there to be a benefit once they go through the exercise of determining eligibility.

Families First Coronavirus Response Act
The Families First Coronavirus Response Act requires employers to give employees paid sick or expanded medical and family leave due to COVID-19. Many contractors refer to this as “COVID Pay.” Although many applied for this in 2020, fewer have applied so far in 2021 as there have been fewer requiring time off due to the virus. With the passage of the American Rescue Plan on March 11, 2021, this coverage was extended an additional six months, the hourly max per employee was reset effective April 1, 2021 and the qualifying events were expanded to include time off for vaccines.

The Implications: What Should Contractors Keep in Mind?

While the benefits of the government relief are quite expansive, there are also various risks and implications involved if contractors do not adequately document their eligibility or properly determine the amount claimed. For PPP loans, there are number of compliance requirements as included in the initial laws, as further interpreted and outlined in the dozens of interim final rules and FAQs from the SBA, that must be considered if one has obtained a PPP loan. Businesses were also required to certify to their need for the loans, which they should be prepared to support under audit. While loans over $2 million are subject to an automatic audit, the SBA has indicated it may conduct audits on other loans at any point in the six-year lookback period. No matter the size of the loan, borrowers seem to gain some sense of comfort with the fact that all forgiveness applications are reviewed and approved, generally by the bank and the SBA. As part of both the loan application process and the forgiveness process, there are various certifications made by the business related to the information included in both applications.

For ERC, there is no immediate review or approval process. Amounts that are claimed are generally received via a refund or a credit, without any questions asked. The IRS has the ability to audit these claims with a four-year lookback period. Because of the size of this program and the significant benefit, it is anticipated that there will be a fair amount of IRS audits conducted related to these claims, but it remains to be seen how wide scale these audits will be. Similarly, for PPP and ERC, inaccurate documentation regarding eligibility and amounts claimed could result in denied claims, and the potential for repayment of funding plus interest and penalties.

While PPP is a tax-free program, it is important to note that ERC is not. This is a major distinction that must be kept in mind as contractors address financial relief programs and work to allocate payroll between the two. For tax planning purposes, it’s also important to note that the ERC amounts received in the year will result in increased taxable income even if the topline and expenses otherwise seem to be stable or down from 2020.

The Future: What’s Next for Contractors?

While the existing relief programs have provided contractors with some much-needed relief, the future is extremely unpredictable as the Delta variant continues to impact the United States. The ongoing supply chain issues continue to cause challenges causing major strain and impact on the construction industry. The shortage of steel, lumber and more has shown that the residual effects of COVID-19 can greatly impact a construction firm in the long term. Among other concerns, the labor shortage has proven to be a top concern. However, though these delays and shortages making work difficult overall, contractors are finding a way to rebound and are busier than ever before.

Additional relief and support are in sight with the pending passage of the Infrastructure Bill. If supply and labor constraints can be overcome, this bill should provide an additional kick-start for the construction industry. While it may not be directly related to relief funding, it will positively impact the industry as the work for the anticipated roads and bridges, rail, internet and other infrastructure should give the industry additional projects to add to their backlog for years to come.

The Key: Stay Informed

As contractors continue to look for ways to respond to the ongoing COVID-19 pandemic and the financial programs offered to them, it has never been more important to work closely with a team of advisors to ensure they are accurately documenting and maximizing all benefits potentially available to them. Seeking counsel from attorneys, accountants and others can help contractors stay up to date with the latest legislation, and other guidance as the landscape continues to rapidly change.