Surviving the coronavirus pandemic is paramount. If we don’t do that, nothing else matters. So, do that first.
Now, when we survive, and most will, we should expect a hike in prices, especially from small businesses. In fact, it’s built into the legislation. Here’s how.
Two specific coronavirus actions set up this clash: The Small Business Administration’s Paycheck Protection Program, a forgivable loan for small businesses, and the extended federal unemployment benefits granting an additional $600 per week in benefits for four months.
Businesses with fewer than 500 employees are eligible for the payroll program loan. In West Virginia, that’s all but 90 firms of 43,534 (99.8%), according to list provider www.infousa.com. Additionally, nonprofits, sole proprietors, people who are self-employed and people who make their income as independent contractors are eligible.
The borrowed amount can be 2.5 times an organization’s monthly 2019 payroll with a $10 million cap. That includes salaries, wages, commissions, vacation, sick and parental, family and medical leave pay with a $100,000 maximum per person.
It also includes owners’ wages upon which payroll taxes were paid but excludes dividends, distributions or withdrawals. It also includes independent contractors issued Form 1099s. Additional amounts are included such as retirement contributions, group health premiums and state and local taxes assessed on payroll.
So, if the monthly payroll is $20,000, then the forgivable loan may be $50,000.
As for forgiving, the $50,000 must be spent on specific costs within eight weeks from the date of the loan, so time is of the essence in having employees return to work. These allowable costs are all things used in calculating the loan plus other expenses, like rent (or building mortgage interest) and certain utilities. However, 75% of the forgivable amount must be payroll.
The employee count mandates that companies have until June 30 to bring back the number of workers they had on Feb. 15 or face losing some forgiveness. It need not be the same people but the same number. Also, workers must be paid at least three-fourths of previous pay or more forgiveness on the loan is lost.
Any leftover amounts convert to a two-year, low-interest loan. So a business could apply for a loan, spend it on forgivable purposes and then pay back any balance without penalty. Or keep the excess and pay it as a loan.
Should businesses apply? Yes. How? Contact your bank.
Understand, banks are facing unusual roll-out challenges, according to American Banker, so most are currently restricting loans to existing customers. So start with your bank.
For the second act, Congress granted $600 a week to unemployed workers on top of state benefits for four months.
Congress didn’t want unemployed people to return during the middle of the crisis, so additional funds were provided to assist with other expenses.
Sen. Lindsay Graham, R-S.C., led other Republicans in an attempt to cap benefits to 100% of the current wage but failed.
And this is where the dichotomy appears.
A worker paid $15 an hour would normally receive 60% on unemployment — or $9 an hour. Add the $600 a week additional and that’s $15 more an hour or an effective rate of $24 per hour.
Should the worker be asked to return, they are faced with making $15 an hour working or $24 an hour collecting unemployment.
In fact, a worker would need to make $38 an hour ($79,040 yearly) before working would mathematically pay the same as unemployment.
Usually, those on unemployment must be available to work, or they lose benefits. However, in West Virginia and other states, that requirement is temporarily waived so a worker may choose to stay on unemployment or return.
Undoubtedly, many will return, even with lower pay, because a secure job is worth more than a temporary benefit. But we can anticipate raises in pay because of competition with the unemployment bump. And that means prices will go up.