Union leaders are unhappy with some of the new changes to the $670 billion small business pandemic relief program, warning that they would undermine the purpose of the aid: keeping employees on the payroll.
The changes in question were enacted through a bipartisan bill President Trump signed into law and lower (from 75% to 60%) the share of the funds that small businesses must spend on payroll to qualify for full loan forgiveness. This change could shift money away from worker pay, the unions say.
“It moves us in exactly the wrong direction, by creating a disincentive for employers to retain or rehire workers, which increases the unemployment rate,” more than a dozen major labor unions said in a recent letter to Congress.
The labor groups, including the United Steelworkers, the NFL Players Association, and the United Food and Commercial Workers, said the new changes “make a mockery” of the program’s original goal of employee retention and instead are “yet another giveaway to big business at the expense of workers.”
The Small Business Administration’s relief program, called the Paycheck Protection Program, provides struggling small businesses with loans that are forgivable if the terms for retaining workers are met. The program was initially funded with $350 billion as part of the massive $2.3 trillion CARES Act coronavirus relief package.
The ratio of payroll to non-payroll expenses that businesses are forced to follow if they want their loans forgiven was more in favor of workers before the recent changes to the program. This is what labor groups are upset about.
“The ‘tweaks’ are actually a massive retreat on paycheck protection and employee retention, and a full-on redirection of federal aid meant for workers toward debt service to lenders and unjustified protections for investors,” the letter from the labor groups said.
The labor groups are worried that the new changes to the small business program could lead to an increase in layoffs and a slower rate of rehiring, potentially hurting the recovery of the labor market.
Many economists, however, have indicated that the unexpected job growth seen in the May unemployment report could be attributable to the small business relief program and expect the program to keep helping. Treasury Secretary Steven Mnuchin has touted its success multiple times, saying that roughly 50 million jobs were saved due to it.
There was a growing consensus from various businesses that the old requirements for loan forgiveness, including the 75% for payroll expenses, were restraining them. Many businesses also felt the changes were needed because the pandemic and its related shutdowns have lasted longer than Congress had expected, and so, the rules had to be updated to reflect the reality of non-payroll costs faced over time.
Senate Minority Leader Chuck Schumer, a New York Democrat, said that increasing the amount of money small businesses can spend on non-payroll expenses is critical to keep them alive.
“In my home state of New York with high rents, high utility costs, many businesses were frozen out when it was 25%, but 40 will get them in,” Schumer said on the Senate floor earlier in June. “And that applies to most of your high-cost areas throughout the country.”
The National Federation of Independent Business, one of the largest small business associations in the country, endorsed the new changes and said it would clear up some of the confusion around the program’s rules and give mom-and-pop stores more flexibility to use the money as they see fit.
“The Paycheck Protection Program Flexibility Act of 2020 will further help many small businesses impacted by COVID-19 by reducing the payroll limitation of the program and extending the loan forgiveness period,” the federation said in a statement.
