After a second round of federal Paycheck Protection Program loans was authorized by Congress, Ivanka Trump said the program was aimed at keeping the small business workforce employed.
“It’s about your businesses thriving and growing within your communities,” she said at a press conference April 28. “It’s about your workforce, who each of you cares very dearly about.”
But employees, especially in seasonal businesses, are put in a bad position by the PPP.
For the loans to be forgiven, 75 percent of the money must be used on payroll within eight weeks, so owners must either pay employees to stay home, or they must reopen when it may not be safe to do so, while there are few customers and little work to do.
Either way the employees are faced with the prospect of giving up the extra $600 per week in supplemental unemployment benefits that was included as part of the federal stimulus package. If they choose not to go back, they would lose eligibility for unemployment benefits altogether.
For many Maine workers, that extra money is more than just a nice bonus. It is a needed lifeline to survive what they expect to be a year without a busy season.
“In the seasonal restaurant industry we are always being told to save for the winter,” Emily Nichols, who has been waiting tables in Portland for two decades, said May 8. “But we just made it through winter with the money that we put away, and then we’re all being hammered with basically another winter, followed by another winter.”
The couple of months between the Fourth of July and Labor Day, Nichols said, are when restaurant workers make the bulk of their money for the year. But with fewer people traveling, and fewer people eating out because of the safety concerns or the financial impact of the pandemic, Nichols and her colleagues are expecting that won’t happen this year. Once restaurants do reopen, they expect to be working fewer hours and making less money, or being laid off again after the supplemental benefits have expired.
Nichols said she doesn’t blame owners for taking the PPP loans and wants to see every restaurant pull through this crisis. But because of the way the program is set up, when furloughed employees are rehired, they lose their only bailout.
Business owners, meanwhile, expressed frustration at the timeframe in which the money must be spent and other aspects of the program. They are worried about how to keep their employees on the books after those eight weeks expire, when business is still expected to be slow.
Some, including Krista Kern Desjarlais, the James Beard Award-nominated chef who owns The Purple House in North Yarmouth, and Paige Gould, owner of Central Provisions and Tipo in Portland, said they could not find a way to make it work and chose not to apply for the loans.
Joe Walsh, who owns Green Clean Maine, an environmentally friendly house-cleaning company in Portland, called the program a pass-through for unemployment that does very little to actually help small businesses, and said it is especially problematic for high-rent businesses downtown where payroll makes up a smaller percentage of expenses. But with payroll making up more than 50 percent of his expenses, he decided to accept a loan.
“How the forgiveness is structured makes it so that the companies best positioned to get full forgiveness are the ones that need the aid the least,” he said by email May 7. “It also becomes quickly apparent how the program will do almost nothing for businesses that have been forced to close, particularly when we now know that expenses paid with PPP income are not tax-deductible (new rule this week) and that businesses are still responsible for paying SS and Medicare taxes on their payroll.”
Walsh also acknowledged that the PPP loan turns the employer into the “bad guy” when employees are pulled off unemployment.
But Walsh found a way to make it work for his employees by rehiring fewer of them and offering at least the amount they were making on unemployment. He did this by playing with other rules around loan forgiveness.
Walsh said using resources such as those available from Nutter Law firm in Boston, he was able to calculate how much of his loan would be forgiven based on the numbers of employees rehired and how much he pays them. He decided he would use only that amount of the loan to pay them what they were making on unemployment.
He worked with lawyer Danielle Hanson of Philbrook & Associates, a Portland bookkeeping and business services firm. Hanson said in a May 11 call that for a business that is eligible for loan forgiveness (by using 75 percent of the money for payroll within eight weeks) the forgivable amount could be reduced if employee headcount goes below what it was in one of two specified time periods, whichever is more favorable, or if the total amount paid to employees over the eight weeks is less than 75 percent of what was paid in an eight-week period of the company’s first-quarter payroll.
Under some forgiveness scenarios, Hanson said, an employer could bring back fewer employees than were laid off, but the 75 percent salary requirement could be met by paying higher “hazard pay” for the eight-week period or by providing one-time bonuses at the end.
“So the employer is making up his 75 percent threshold based on his (first-quarter) wages, but he is also helping his employees make the same amount of money they would be making by not working,” she said. “But not every employer would be able to afford to pay employees that much more money because they might have a lot of employees.”
Walsh’s offer to pay at least what his employees were making with unemployment benefits made a difference to Rachel Heasley of Portland, who has been working for Green Clean Maine for six months. While the company was not required to shut down, the work dropped off in mid-March, and the business closed.
“People understandably were feeling unsure about us coming into their houses,” Heasley said.
For six weeks Heasley was unemployed. At first she thought she wouldn’t be making enough on unemployment to get by, but with the additional federal money she knew she would be fine for as long as it was available.
Because she works on commission, Heasley said she is worried that there will be less work over the coming months, so she was saving some of the extra unemployment money to protect herself against that uncertainty.
“It definitely occurred to me that there’s not much incentive to go back to work if I could be making more money just by staying home,” she said. “But (that by) using the PPP loans, Green Clean was able to address that definitely was a big consideration in my feeling OK about going back to work.”
Heasley was also concerned about returning to work for safety reasons, but the company held a training day for new sanitization protocols and implemented the use of masks and gloves. Clients have also been understanding about keeping their distance while the employees are in their homes, she said.
She said she appreciated the fact that Walsh gave his employees a choice to come back to work. Some may still be concerned about safety, Heasley said, while others may want to remain on unemployment because they have to care for children at home.
Heasley is now using the extra money Walsh is paying through the PPP loan to save for the coming months when the loan period runs out and work may be slow.
For Walsh, taking the loan was worth it to allow his business to continue to operate while also making the proposition tenable for his employees, with higher pay. But the rules of the program can change at any time, so there is a degree of risk he has had to accept by taking the loan.
“I’ve been able to calculate with a fair degree of certainty that I’ll get enough forgiven that I can cover these differentials,” Walsh said. “But I’ve got to admit it’s a little nerve-wracking seeing my payroll costs nearly double overnight from pre-crisis, and not knowing for sure if I’m going to get reimbursed for that.”