If you’re a small business owner like I am, you’ve been closely following the stimulus efforts of the federal government, looking for a lifeline out of the mess of delayed payments, lost revenue, and furloughed employees. Unfortunately, while it looks as though everyone is taking seriously the average worker’s needs, no one at the decision-making level has thought of the small business owner.
Congress passed the Families First Coronavirus Response Act on March 18, providing the first ever federally mandated sick leave program and a corresponding payroll tax credit for employers. Employers are somehow expected to pay those employees cash up front for up to 80 hours of work and then retain payroll tax payments instead of delivering them to the Internal Revenue Service.
Form 7200 can be filed to request payment from the IRS for any shortage, but this is likely to take weeks or months to arrive given the IRS’s current focus on stimulus payments to virtually everyone in America. Keep in mind that unless business owners argue exemption, this is a required program for any business with fewer than 500 employees.
In addition, credits are being offered in similar fashion for employee retention and expanded family and medical leave. So employees can expect up to 10 days of regular pay from their employers while those same employers can expect a further temporary reduction in cash flow. But that’s not all.
On March 27, Congress passes the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provides for the bulk of the remaining stimulus to workers. First, individual tax refund advances are prescribed at $1,200 per adult filer ($2,400 for joint filers) and $500 per qualifying child. This gives all employees in America at least $1,200 in cash at some point.
Second, the Payroll Protection Program was created through the Small Business Administration’s 7(a) loan program that provides for 2.5 times the average monthly payroll of a small business in the form of a forgivable loan. Because of the way the Treasury and the Small Business Administration implemented the Payroll Protection Program, this turns out to be a pretty bad loan for a small business owner due to its short two-year term, and must therefore be considered for its forgiven provisions.
Unfortunately, those same administrators added restrictions on the forgiveness criteria, requiring at least 75 percent of the forgiven amount to be used for payroll. This payroll cannot be the same payroll used for the sick leave credit from the Families First Coronavirus Response Act. So the vast majority of these funds will go to employees who will receive those payments in addition to everything else I’ve already mentioned.
Third, the CARES Act expanded regular unemployment benefits by adding $600 per week to each eligible employee’s other benefits. In some cases, people on unemployment will receive even more cash weekly than they would have on payroll.
The only widely available stimulus benefit that is not required or heavily incentivized to be used for payroll or to otherwise go directly to the worker is the CARES Act funding allocated to the Small Business Administration’s Economic Injury Disaster Loan (EIDL) Program. All owners and managers know the host of general and administrative cash outflows related to running a small business, including rent, utilities, insurance, internet, benefits, interest, and minimum payments on credit cards and other loans, sales tax payments, memberships, advertising agreements, contractual obligations, inventory purchasing agreements, and more.
While the Payroll Protection Program loan allows 25 percent of the forgivable amount to apply to rent and utilities, most of the time this may not be enough to cover the expense. Nor are any of the other cash flows accounted for. To make matters worse, EIDL is the one program struggling to get payments into the hands of business owners. It also received the least of the CARES Act funding at just $562 million.
What are small business owners expected to do? So far, we are acting as conduits for further payments to our employees, putting our credit and our assets at risk, spending hours organizing financial data and applying for loans, all of which go through our hands and into the hands of those working for us who have other options at their disposal. To be sure, small business owners want our employees taken care of during this crisis, but we have other concerns too.
We need Congress to consider our infrastructure at least as much as it has shown interest in subsidizing individuals. The EIDL program must be funded properly, or our employees won’t have any jobs to return to after the stimulus periods have passed.