Because of the expanded unemployment benefits in the CARES Act—an extra $600 per week from the federal government on top of state benefits—some employers that have scored coveted emergency loans for small businesses are now finding themselves stuck between the terms of their loan and employees who are asking to be laid off. Here’s the breakdown.
Loans to small businesses through the Paycheck Protection Program are fully forgivable so long as the bulk of the money goes towards payroll costs and there’s no drop in employee salaries and headcount, among other criteria.
Meanwhile, if workers are being paid by their employers through PPP money (even if they aren’t going into work, which could be the case for restaurant workers, for example) they aren’t eligible for unemployment benefits; they also aren’t eligible if they voluntarily quit their jobs.
That’s turned out to be a major sticking point for some workers who feel they may be missing out on money through unemployment, where the federal government has added an additional $600 a week to the weekly benefits paid out by states.
Those extra unemployment benefits will last four months, while PPP loans were originally designed to tide businesses over for eight weeks.
In some states, that could mean a worker is able to make more money through unemployment benefits than they would earn by remaining at a low-paying job.
According to one Econofact study, full-time workers earning $10 per hour can receive unemployment benefits under the CARES Act that are twice what they would have earned if they were still working.
Now, as a result, some employers are finding themselves at odds with their employees: “It was a firestorm of hatred about the situation,” one spa owner told CNBC, after she told her employees that she’d be keeping them on the payroll thanks to a PPP loan.
This issue disproportionately affects those industries that have been hit hardest by the coronavirus crisis. In Ohio, workers can now receive $963 a week on unemployment under the CARES Act, Politico reports. The average weekly wage for Ohio is $980, but restaurant workers in the state typically earn less than $500 per week.
“We’re not really sure what to do,” says Nabil Cabbabe, president of the Bank of Houston/Spirit Bank in Missouri who also runs an after-school gymnastics center that received a PPP loan. “It’s tricky. They’ve kind of pitted us against our employees a little bit.”
During tense negotiations before the passage of the $2 trillion CARES Act, Republican senators claimed the unemployment benefits in the bill would incentivize Americans not to return to work. The CARES Act eventually passed with the expanded unemployment benefits intact. After days of debate, Senate lawmakers on Tuesday passed a bipartisan bill worth some $480 billion that would replenish funds for the emergency small business lending programs established by the CARES Act (the PPP ran out of its allotted $350 billion in funding after less than two weeks) as a stopgap ahead of another major relief bill. Tuesday’s interim bill did not make any changes to the $600 per week supplemental unemployment benefits.