Chapter 02

Employee Retention Credit and PPP Compared (ERC vs PPP)

Those business that receive PPP loans may still qualify for the ERC, but do you know how to determine eligibility for both programs?

PPP loans and the employee retention credit are wildly different beasts, so how do you ensure you are both eligible for PPP and eligible for the employee retention credit?

And which is better for your business?

By the end of this chapter, you'll have your clear answer...

What is the difference between employee retention credit and PPP?

The main difference between employee retention credit and PPP is that PPP is a forgivable loan for small businesses, whereas the employee retention credit is a tax credit. They also have different eligibility criteria, costs, timing, and audit risks that you should be aware of.

Whether ERC or PPP is the better option depends on specific needs and eligibility:

The ERC credit is better for businesses with significant revenue decline or those that were fully or partially suspended due to COVID-19, whereas PPP is better for businesses needing a larger loan for a longer period and with fewer eligibility requirements.

But can you take the ERC even if you get PPP? Let’s address that first.

Can you get employee retention credit and PPP?

Yes, you can get both PPP and the employee retention credit program, but this wasn’t originally the case. The Consolidated Appropriations Act of 2021, which was signed into law in December 2020, made changes to the rules, allowing businesses to qualify for both programs under certain circumstances.

Specifically, the same employee wages cannot be used to calculate both the PPP loan debt forgiveness and the ERC.

In other words, if a business uses PPP funds to pay wages, those wages aren’t eligible for the ERC. However, the business can claim ERC on any wages that weren’t covered by the PPP loan.

But, how do these two different programs compare and contrast?

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ERC vs PPP comparison chart

If you just want an at-a-glance view of ERC vs PPP, use this chart. We’ll cover the areas in the chart in further detail shortly:




Employer eligibility

ERC offers tax credits for COVID-affected businesses with reduction in gross receipts or suspension, covering furloughed, part-time, and  full-time employees.

PPP covers eligible small businesses, nonprofits, independent contractors, and self-employed individuals, and requires that employees be included in the calculation of loan forgiveness.

Funding type

ERC tax credits can be applied to reduce employer social security, income, and Medicare taxes.

PPP offers forgivable loans that can be used for payroll costs, rent, utilities, and other eligible expenses.

When is funding received?

Most employers can expect to receive their ERC refund within six months to a year after filing their return.

From start to finish, the process typically takes about two weeks, although some borrowers are receiving funds quicker than that.


ERC is cost-free for businesses, because it provides tax credits instead of loans.

Interest rates associated with PPP loans will be at a maximum 1% per annum. There will be no fees for borrowers to apply.


ERC has a low risk of audit, as it is a tax credit program that requires businesses to meet eligibility criteria, but there is a possibility of audit by the IRS.

PPP has a higher risk of audit compared to ERC, as the loan program requires documentation and compliance with certain rules.

Maximum credit amount

The maximum amount of qualified wages per employee is $10,000, so the maximum credit that an employer can receive is $5,000 per employee

PPP has a maximum loan amount of $10 million or 2.5 times the average monthly payroll costs, whichever is less.


ERC has limitations on which wages and healthcare costs can be used to calculate the tax credit, and there are also limits on the total amount of credit that can be claimed by an eligible employer.

PPP has limitations on the use of funds, such as a requirement that at least 60% of the loan be used for payroll expenses, and certain restrictions on employee compensation and layoffs during the covered period.

Employee retention credit and PPP eligibility differences


The ERC is available to eligible employers who experienced a significant decline in gross receipts or were fully or partially suspended due to government orders. Businesses of all sizes, including tax-exempt organizations, can qualify for the ERC. 


On the other hand, the PPP has the following requirements:

  • Small: A business with fewer than 500 employees or businesses that meet the Small Business Administration's size standards, 

  • Operating: the business must have been in operation and 

  • Payroll: the business must have paid salaries and payroll taxes, or 

  • Contractor: the business paid independent contractors.

PPP & employee retention credit funding type


One of the key aspects that makes the ERC unique is that it is a credit, not a loan.

The ERC provides eligible employers with a tax credit against their share of Social Security tax. The credit can be applied against the employer's payroll tax deposits, or the employer can request an advance payment of the credit from the IRS.


In contrast, the PPP provides businesses with a loan that can be forgiven if the funds are used for eligible expenses, including:

  • Payroll expenses

  • Rent

  • Utilities

  • Mortgage interest

ERC vs PPP timing differences for receiving funds

The disbursement of funds, application process, and loan forgiveness or tax credit claiming processes are critical factors to consider when evaluating ERC vs PPP.

If time is of the essence for your business, then be sure that you are aware of the deadlines for when you may receive the credits or funds from either program.

The timing of the ERC and PPP are significantly different. For a more immediate tax credit benefit, the ERC may be the better option. If your business’s financial needs can hold out for a few more weeks, then the PPP may be more appropriate. 


The ERC provides a tax credit, which is available immediately, although refunds may take longer. 

ERC refunds typically take between 6 and 8 weeks to process after the employer files for it. However, depending on the size and type of business you own, refunds can take up to 6 months to even a year after filing for return. 


By contrast, the timing of receiving funds from the PPP depends on several factors, including:

  • Lender's processing time 

  • Completeness of the application

  • Availability of funds

The Small Business Administration has set deadlines for lenders to process PPP applications, but the timeline can vary depending on the lender's workload and the complexity of the application. 

Moreover, lenders have up to 20 days after the date on which a PPP loan is approved by the SBA to fund the borrower’s loan. In most cases this funding happens within 2-3 business days after the signing of a promissory note. 

Once a borrower is approved for a PPP loan, the lender is required to disburse the funds within 10 calendar days of loan approval. The loan is considered approved once the Small Business Administration assigns a loan number to the borrower.

Costs of employee retention credit vs PPP


For businesses, the ERC does not have any direct costs as it is a tax credit, which reduces their share of Social Security tax.

The credit is equal to 70% of qualified wages paid to employees, up to a maximum of $10,000 per employee per quarter, for a maximum credit of $7,000 per employee per quarter. 

The credit can be claimed immediately on the employer's quarterly employment tax return or by filing Form 7200 to request an advance payment from the IRS.


On the other hand, PPP is a loan that must be repaid with interest. The PPP interest rate is 1%, and borrowers must repay the loan within two to five years, depending on when the loan was disbursed. 

However, borrowers can apply for PPP loan forgiveness if they use the loan funds for eligible expenses such as payroll, rent, and utilities. 

If borrowers meet the forgiveness criteria, they won’t have to repay the loan. But it’s imperative that you seek legal advice to confirm whether you meet all loan forgiveness requirements.

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Audit risks for ERC and PPP

Both PPP loans and the ERC are at risk of being audited from the IRS and SBA, respectively, although their risks differ depending on the circumstances.

It's worth noting that the PPP may have a higher risk of audit as it involves a larger loan amount that must be repaid with interest, whereas the ERC is a tax credit that reduces the employer's share of Social Security tax.

The PPP also has more extensive documentation requirements for loan forgiveness, which may increase the likelihood of an audit.


The IRS has stated that it will be closely monitoring claims for the ERC to ensure that businesses are eligible and that the credit is calculated correctly.

It also indicated that it may conduct audits to ensure that businesses are complying with the requirements for claiming the credit.

Thus, it’s vital that businesses ensure they’re accurately calculating and claiming the credit and maintaining appropriate documentation to support their claims.

Be sure to check out guide on will the IRS audit the ERC!


Similarly, the SBA has indicated that it will be conducting audits of PPP loans to ensure that borrowers are using the loan funds for eligible expenses and that they meet the forgiveness criteria. 

It will audit all loans over $2 million, as well as a random sampling of smaller loans. Borrowers who do not meet the forgiveness criteria may be required to repay all or a portion of the loan with interest.

PPP and ERC comparison for maximum credit amount

Note that businesses may not be eligible for both the ERC and the PPP for the same wages or expenses. 

If a business receives a PPP loan, they cannot claim the ERC for wages paid with PPP loan funds. However, they can claim the ERC for wages paid with non-PPP loan funds.


The ERC maximum credit amounts are as follows: 

  • 50% of qualified wages paid to employees 

  • Maximum of $10,000 per employee per quarter 

  • Maximum credit of $5,000 per employee for 2023

This means that if a business paid an employee $10,000 in qualified wages in a quarter, they would be eligible for a credit of $5,000 (50% of $10,000). 

The credit can be claimed on the employer's quarterly employment tax return or by filing Form 7200 to request an advance payment from the IRS. 


For the PPP, the maximum loan amount is:

  • 2.5 times the average monthly payroll expenses (which includes salaries, wages, tips, benefits, and state and local taxes)

  • Maximum loan amount of $10 million for first-time borrowers

  • Maximum of $2 million for second-draw loans

However, the loan forgiveness amount is based on eligible expenses such as payroll, rent, and utilities, and not on the loan amount.

Limitations and drawbacks of the employee retention credit and PPP loan 

While both the employee retention credit and PPP loan provide financial relief for businesses, there are some limitations and drawbacks to consider.


Limitations and drawbacks of the ERC are: 

  • Ineligibility for businesses that received PPP loans: Businesses that received PPP loans may not be eligible for ERC for the same wages or expenses. This means that businesses must choose between PPP debt forgiveness and the ERC. 

  • Reduced eligibility for larger businesses: Businesses with more than 500 employees aren’t eligible for the ERC, except for those that experienced a significant decline in gross receipts due to the pandemic.


Limitations and drawbacks of the PPP are: 

  • Forgiveness limitations: PPP loan forgiveness is limited to eligible expenses only, such as payroll, rent, and utilities. Borrowers must use at least 60% of the loan amount on payroll costs to be eligible for full loan forgiveness. 

  • Repayment: If businesses don’t meet the forgiveness criteria, they may be required to repay all or a portion of the loan with interest

  • Extensive documentation requirements: Businesses must maintain extensive documentation to support their loan forgiveness applications, which can be time-consuming and costly.

Conclusion: Is the ERC or PPP right for you? 

Determining whether the employee retention tax credit or the paycheck protection program is right for your business depends on multiple factors, including:

  • Financial needs

  • Eligibility

  • Program requirements 

If your business needs short-term financial relief to cover payroll costs, rent, utilities, and other eligible expenses, the PPP may be the right choice. 

PPP loans offer forgiveness for eligible expenses, and the program has been extended to prioritize businesses with fewer than 20 employees. 

On the other hand, if your business is ineligible for PPP loans or has already received PPP loan funds, the ERC may be a viable option to provide an immediate financial benefit.

(Make sure you check out our guide on how to apply for the employee retention credit for more guidance)

Ultimately, it's important to consult with the team here at Brotman Law and review each program requirements to make an informed decision.

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