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Law360 (March 24, 2020, 8:15 PM EDT) --
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| Bradley Scott |
We simultaneously face two issues of tragic proportion that require seemingly opposing responses. We need to self-isolate to protect our loved ones who are vulnerable to a new and poorly understood virus. We also must prevent our economy from submerging into a motionless abyss.
COVID-19 has Washington, D.C., scrambling to ensure that affected workers, sick or not, are not harmed financially, but legislation may be doing more damage to the small business infrastructure than anyone can predict.
Small businesses across the country operate on thin margins and are not prepared for even brief periods of little to no revenue. Congress is in the process of drafting bailout legislation, but who are they bailing out? It should be the American worker whose employment has been affected by COVID-19. If done well, both people and businesses can weather this new storm.
We are already seeing the effects of COVID-19 on the economy and job market. Business is grinding to a halt. Employees who become infected will obviously miss work because of that.
However, many more workers across our country are missing work because of government-mandated shelter-in-place requirements and other business closures caused by an overnight collapse in consumer demand. These people are not missing shifts because of COVID-19; they are missing work because of an ill-informed and ill-conceived official response to an unknown enemy and a general sense of impending doom.
Congress is trying to avoid the mistakes of the 2008 financial crisis by steering clear of the impulse to bail out corporate America. The underlying message of the bills coming out of Washington right now is that small businesses do not look out for their employees.
I would first like to share with you our policy on paid time off, holiday closures and insurance at Halstead Bead, a small business in Prescott, Arizona, with fewer than 25 employees. New, full-time hires earn 14.4 days of PTO per year in their first year. That figure scales up to 24 days per year for long tenured employees. Additionally, we offer between 12 and 16 days of paid holidays each year.
This is in addition to PTO. That means that an employee at Halstead could be paid for between 26.4 and 40 days a year without being in the office. We also contribute $6,840 per full-time employee towards health insurance premiums each year. Excluding owner pay, our average hourly pay to our staff is $19.31; this equates to roughly $40,780 in pay.
The fact that these practices are not taken into consideration in any of the emergency COVID-19 legislation is troubling. If we survive the coronavirus crisis, we may be forced to revisit our policy. For businesses with PTO policies in place, the 10-day medical leave and 12-week family medical leave paid periods should be taken concurrently, not consecutively. I understand that some small businesses do not have PTO policies, but assuming that none do is irresponsible.
More concerning, many small businesses do not have the cash reserves to cover payroll for two additional weeks with substantially reduced or non-existent revenue. The idea that the owners of these businesses are sitting on stockpiles of cash reserves is just wrong. Many businesses and their owners survive week to week, just like their employees.
The second relief bill, the Families First Coronavirus Response Act,[1] and the third bill, the Coronavirus Aid, Relief, and Economic Security, or CARES, Act focus on ensuring that small businesses, those with fewer than 500 employees would pay their sick or quarantined employees. Payroll tax credits (for which the employer portion amounts to 7.65% of total payroll), unexplained treasury issued subsidies, and low interest rate Small Business Administration loans (that may or may not be forgiven) were the preferred tools. Companies above the published threshold were exempted entirely. I do not believe these are the correct mechanisms for addressing this new threat to the American worker.
After reading the proposed legislation, I offer a few thoughts and questions from the perspective of a business owner concerned about both the health of our population and the health of our small businesses.
When times are tough for businesses, we make tough choices. One of those choices is whether or not layoffs are required. We pay into unemployment insurance for these types of situations. If the current consumer trends continue, the coming layoffs will not be a result of COVID-19, they will be the result of a seismic shift in consumer demand and the vastly reduced cash flow that follows.
Government-mandated closures are not the same as sick employees. Our healthy, productive employees are being told to shelter in place, all but terminating commerce. This is not the time to use PTO. This is exactly the time that our employees should be able to access temporary unemployment benefits. Taking out loans of any kind under these circumstances is a greater risk to the existing small business infrastructure than many can fathom.
If we as a business are not able to bring in revenue, taking on additional debt of any kind is not really possible. A low interest rate SBA loan that may or may not be forgiven to cover payroll for a mandatory sick leave is a recipe for layoffs or worse.
There was a section regarding loan forgiveness for loans covering payroll. How do we determine if we would qualify? Who makes that determination? At what point in the loan's life would we know if it would be forgiven (and what percent would be forgiven)? Can a loan be established as forgiven before it is accepted? These are material questions with severe consequences.
Telework, or work from home, while seemingly a good option, is in many businesses not possible for an entire staff. We move inventory; at least half of our staff must be physically present for our business to function.
Frankly, the direction the federal government is going in is creating another level of bureaucracy that will take additional time and resources for small businesses to navigate. The crux of the issue is people who are put out of work, either completely or partially.
For many businesses, a slowdown is inevitable. This begs the question: Why are we not using the existing framework of the unemployment system? There are three options for businesses that spring to mind.
First, for those employers who really need to cut staff, unemployment is the best mechanism.
Second, for businesses like ours that have invested time and resources into training that do not want to lose our teams, work-share unemployment programs exist. The Arizona Department of Economic Security now offers partial unemployment benefits when you reduce work hours between 10% to 40% for any group of more than two employees. It gives us more options.[2]
Third, and probably most likely, is a combination of the two alternatives above.
Unemployment insurance has been used for decades to manage fluctuations in workplace numbers. Altering the eligibility criteria for America's workers to access that stopgap and replace more of their lost income would be much simpler than trying to create a new program entirely.
No employer wants to cut jobs and put people in unemployment. It is a gut-wrenching reality that business owners grapple with in hard times, but it is a necessary service businesses fund and trust the government to administer. By shifting the burden to small businesses with loans and bureaucracy, the current policy proposals almost guarantee that many businesses will go under. I do not believe that is the desired outcome, but I fail to see how the laws currently moving through Washington will not lead to this outcome.
We already have the tools; just allow them to be used.
More importantly, state and local governments are forcing widespread shutdowns onto their populations. Rather than stopping commerce, government officials should be educating businesses on best practices for health and safety.
In the weeks since the pandemic has really hit home, our small business has sent a third of our staff home to work remotely; in the coming week, that figure will be closer to half. We operate a warehouse. Our employees have 15,000 square feet in which to work and remain spatially separated. Things like proper hand-washing, disinfecting work spaces and not congregating in groups are now commonplace. We are taking precautions to ensure that our employees are not at risk. These factors should be considered by officials.
Statistically, coronavirus has a higher impact rate on the elderly and people with underlying health conditions. These are the people who need to be self-isolating. They need to be able to rely on the rest of society to keep the economy going. If someone falls ill, they can take time off, but widespread shutdowns are going to cripple our economy for a long time to come.
There must be a common-sense solution that allows people to assess their own personal circumstances. Shuttering businesses that have policies in place to allow for sick employees to stay home is not a viable, long-term option. How many businesses are financially able to weather an extended period with little to no revenue? Not many.
Our nation's small business infrastructure was built slowly. If it is dismantled, almost overnight, by COVID-19 and the knee-jerk response we are currently seeing, the economic pain in the years to come will far outweigh anything this virus is doing now. Strategically identifying and protecting the most vulnerable in our society does not need to involve the destruction of our economy.
Bradley Scott is director of finance at wholesale jewelry supply company Halstead Bead Inc.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the organizations or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] H.R.6201
[2] https://des.az.gov/services/employment/unemployment-employer/shared-work-program-faqs.
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