Small businesses struggle to hire their workers back

Congress is looking at ways to adjust the federal loan program, which makes it hard for businesses to compete with current unemployment benefits.
Image: People who lost their jobs wait in line to file for unemployment benefits, following an outbreak of the coronavirus disease (COVID-19), at Arkansas Workforce Center in Fort Smith
People who lost their jobs wait in line to file for unemployment benefits at an Arkansas Workforce Center in Fort Smith on April 6, 2020.Nick Oxford / Reuters file

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By Leigh Ann Caldwell

WASHINGTON — The owners of The Crown Shop, a card and gift retail store in Little Rock, Arkansas, are planning a scaled-back reopening for Monday, but they are struggling with asking their employees to come back to work for less money than they are receiving in unemployment insurance.

Complicating matters is that the owners got a small-business loan through the Paycheck Protection Program, or PPP, and to meet the requirements of the loan, they must show that they rehired their furloughed employees.

"We are in between a rock and a hard place," said Wendy Ramsey, who is the business partner and daughter-in-law of the owners of the family store.

While the PPP is being lauded as a way to keep people on employers' payrolls, small businesses are finding it hard to compete with unemployment benefits.

The Ramseys' experience is one that is being felt across the country. In a rush to provide a lifeline to millions of unemployed Americans as the efforts to combat the coronavirus epidemic shuttered businesses, Congress provided an additional $600 a week of unemployment benefits for 13 weeks, on top of what states already pay, in the CARES Act signed into law in late March.

For the Crown Shop employees in Arkansas, furloughed employees are receiving up to $1,051 a week on unemployment. The Ramseys, who say they have a loyal staff with little turnover, pay $10 to $17 an hour, which amounts to 50 percent to 70 percent of current unemployment benefits.

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The Ramseys got a $129,000 paycheck protection loan from the Small Business Association to help keep them afloat, but they are struggling to meet the terms of the loan for it to be forgiven, which includes hiring back their staff within eight weeks.

"Why would I pay my people for eight weeks when unemployment pays more?" Ramsey said, adding that it is a common discussion among a group of retail stores owners to which they belong.

Two immensely popular programs meant to support workers and employers are running head on into each other.

The two programs "can be in conflict in some labor markets," said Rep. French Hill, R-Ark.

According to an analysis by The New York Times, unemployment insurance beneficiaries in all but 13 states are making more than their previous salaries on average.

When The Crown Shop opens its doors to walk-in customers Monday, its owners anticipate far fewer sales and will need only a quarter of the 32 people they usually employ, again ensuring that they will fall short of the Treasury Department's requirement that 75 percent of the loan be spent on salaries.

"There's no way we're going to have the same amount of business, so we don't need the same number of employees," Ramsey said.

The National Restaurant Association says that is a widespread problem across the restaurant industry, too. The food service industry has been among those hardest hit by the economic shutdown, with the industry expecting to lose as many as 7 million jobs and $225 billion in three months.

Sean Kennedy, vice president of public affairs for the National Restaurant Association, said restaurant employees are often "making a decision that is in the best interest of their family," which can mean staying home on unemployment insurance to avoid the risk of contracting COVID-19.

He said restaurant owners are having to decide whether they turn their employees into the Labor Department for rejecting jobs or just turn a blind eye and look elsewhere for workers.

The trade association has been publicly lobbying Congress and the Treasury Department to make changes to take the reality on the ground into consideration.

It is asking the Treasury Department to change the proportion that owners have to spend on salaries from 75 percent to 50 percent. The association also takes issue with having just eight weeks to use the loan. It would like more time to use the money, having until the end of the year to meet pre-virus staffing levels for the loan to be forgiven.

"There's a growing awareness there's a problem, but we don't have growing consensus that there's a solution," Kennedy said.

Sen. Marco Rubio, R-Fla., said he has asked Treasury Secretary Steven Mnuchin to "clarify" some of the rules around the PPP so businesses have more flexibility.

"There is a provision in the law that says that down the road you can come back in six months or whenever you have to go, get forgiveness and say, 'I didn't hire everybody back in eight weeks, but I hired everybody back in three months, and here is why it took me that long,'" Rubio said in an interview Wednesday on Fox News. "We are asking them to clarify what that's going to look like so more businesses have confidence that this is not going to turn into a loan for them."

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A group of Republican senators tried to strip the unemployment insurance expansion from the CARES Act, arguing that it would provide an incentive to stay home. They were unsuccessful.

Democrats defend the expanded unemployment insurance, saying the point was to give people incentives not to go to work if they were not essential and risk their health or spreading the coronavirus.

The reason the $600 expansion was uniform across all states, regardless of the states' cost of living, is that the Labor Department said it would not be able to process a patchwork of claims quickly enough.

Sen. John Cornyn, R-Texas, told reporters Thursday on Capitol Hill that Congress should consider "a tweak that's something I hope we will fix in the next round" of coronavirus relief.

Lawmakers are beginning to discuss how the next bill could include more financial assistance for small businesses to make the transition back into business.

The Ramseys are considering bringing back their employees part time so they can still receive the $600 federal benefit.

Citing the pitfalls of the unemployment insurance program and the PPP, various lawmakers have proposed plans that would directly pay workers of businesses affected by the coronavirus, cutting out the unemployment insurance system and the banks that issue the loans.

Julie Tsirkin contributed.