During the pandemic caused by the coronavirus, employers that are attempting to keep their payroll and liquidity stable have access to a variety of relief alternatives according to the CARES Act. For instance, the CARES Act allows for debts to be forgiven for up to eight weeks’ worth of a company’s qualifying payroll expenditures, provided that the employer continues to pay employees employers that are equal to those paid before the crisis. This is the Program for the Protection of Paychecks (PPP). Borrowers who obtained certain small business loans before to the financial crisis and are currently unable to make their payments are eligible for debt payment assistance under the Act. The program’s official name is the Small Business Debt Relief Program (SBDRP).
In addition, the legislation makes available emergency economic injury grants (EEIGs) to employers that apply an application for Economic Injury Disaster Loans (EIDLs) and have a requirement for an advance of up to $10,000. Additionally, the CARES Act provides payroll tax credits for distressed employers on wages paid up to $10,000 and permits firms to delay their employer-side payroll tax payments until 2021 or 2022. These benefits are provided in order to alleviate some of the burdens that have been placed on these businesses.
These rules are meant to assist firms in keeping up with their payroll obligations, managing their debt, and increasing their liquidity. In spite of the fact that these actions are required in the near term to forestall more business failures and relieve pressure on unemployment insurance programs, they are not to be utilized as long-term policy prescriptions outside of the context of an economic slowdown.
The regulations for small businesses have a similar goal, but their qualifying requirements and management are different. There are certain instances in which the programs serve the same objective, and there is room for improvement in their level of complexity given that it is unnecessary for them to do so. Streamlining these programs would assist to lessen the likelihood of confusion, cut down on the number of administrative barriers, and shorten the amount of time between the submission of an application and the receipt of funding for people who are in need.
An Overview of the Relief Programs Offered by the Small Business Administration (SBA)
The Paycheck Protection Program (PPP) offers small businesses, certain nonprofit nonprofits, and self-employed individuals access to loans that are 100 percent backed by the federal government for certain payroll expenses through the end of June, with the potential for up to eight weeks of loan forgiveness. The debts will be forgiven if the employers can demonstrate that they have retained employees at comparable compensation levels prior to the crisis. A postponement on loan repayments for a minimum of six months and up to a maximum of one year is made available by the PPP. In addition, all SBA costs are waived.
Provides debt-payment assistance on the principle, interest, and fees for up to six months for non-disaster-related SBA loans (such as 7(a), 504, and micro-loans). This program is known as the Small Business Debt Relief Program (SBDRF). Those who already had a loan previous to the financial crisis and took out additional loans within the first six months after the CARES Act was approved are eligible for assistance from the SBDRF (i.e., until September 2020). It is important to note that individuals who apply for SBDRF are not permitted to utilize any assistance in any way to pay back debts obtained through PPP. In addition, firms are not permitted to utilize SBDRF funds to repay any other debts linked to disasters.
Emergency Economic Injury Disaster Grants (EEIDG)/Economic Injury Disaster Loans (EIDL): This program enables employers to obtain an advance of up to $10,000 in the event that they apply for an EIDL. An EIDL is a loan with a reduced interest rate that is available for up to $2 million, and both the principle and interest can be adjusted at the discretion of the SBA.
Within three days of submitting an application for an EIDL, applicants are eligible to submit an application for an EEIDG. Small enterprises, co-ops, employee stock ownership programs (ESOPs) with up to 500 employees, self-employed persons, and private nonprofit nonprofits that have been disadvantaged by the downturn in the economy as a result of the coronavirus outbreak are eligible to apply for EEIDGs. Before requesting an advance, businesses need to apply an application for an EIDL (EEIDG). The advance does not have to be repaid and can be utilized to keep employees on the payroll, pay for sick leave, meet increased production costs due to supply chain distortions, and pay business obligations such as debt, rent, and mortgage obligations, as stated by the Senate Small Business Committee.
Credits for payroll taxes already paid and delayed payments
Employers may be entitled for a “Employee Retention Tax Credit” equal to fifty percent of the payroll tax credit for wages earned during the crisis that are up to ten thousand dollars or less. Employers whose companies were forced to shut down due to a virus would be eligible for the credit, as would enterprises that had a drop in gross receipts of at least 50 percent as compared to the same quarter in the previous year. The credit can be claimed for employees who are retained but not currently working due to the crisis by firms that have more than 100 employees, and it can be claimed for all employee pay by firms that have 100 employees or fewer.
In addition, the CARES Act allows eligible employers the opportunity to opt out of being required to pay employer-side Social Security payroll taxes until January 1, 2021. This provision is effective immediately. When those payments resume, the first fifty percent are due on December 31, 2021, and the remaining fifty percent are due on December 31, 2022. During this interim time, the Social Security Trust Fund will be replenished with money from the general budget. Firms who opt in the PPP are not eligible for the payroll tax deferral or employee retention credit programs.
Assessing the Costs and Benefits
There is extensive duplication across all three programs, with the exception of the restriction that monies from the SBDRF cannot be used to repay debts incurred through the PPP loan program. Payroll costs and other business obligations are eligible for reimbursement through the PPP, payroll tax credits, and EEIG. Those who are eligible for PPP, on the other hand, are not permitted to claim the employee retention tax credit. Both the SBDRF and the EEIG are designed to offer assistance with debt payment to firms who obtained loans before to the financial crisis. There is duplication between the programs in terms of their goals, recipients, and qualifying requirements.
Simplicity
The assistance is much simpler to acquire if it is organized in a more simplified fashion. It would be easier for small companies and nonprofit nonprofits to grasp all of the programs, criteria, and conditions if there were fewer of them. This would allow them to utilize their time more effectively. The PPP, SBDRF, and EIDL are not straightforward nor transparent for those who are entitled to receive them since they are complex and duplicate existing programs.
Neutrality
Developing unique perks for firms with less than 500 employees might cause regulatory concerns for a great number of businesses. Although it is not unethical to provide assistance to small businesses in and of itself, restricting such relief to firms with less than 500 employees is unfair and penalizes those businesses with somewhat bigger payrolls.
Conclusion
In their efforts to prevent reductions in payroll while also asking workers to remain home in order to stop the spread of the coronavirus, policymakers are up against a number of formidable obstacles. The CARES Act includes measures that provide help for small companies and nonprofit nonprofits that are looking for financial relief during this business. Nevertheless, the development of various programs that serve overlapping functions and have varying standards for eligibility makes the relief effort more difficult, less clear, and less objective.
Consider, for instance, the differences between the employee retention credit and the Paycheck Protection Program (PPP). The first option, known as payroll tax credits, enables some firms with more than one hundred workers to be eligible for a tax credit for the salary of employees who have been retained despite the economic downturn but are not actively working. The same principle applies to all employee pay for firms with one hundred or less staff employees. PPP loans are available to small businesses only, and those businesses must have less than 500 employees to qualify.
Even though the qualifying requirements are different, firms may only choose to opt in one of the programs, and some of the eligible expenditures overlap. In this time of economic turmoil, businesses have to navigate another another bureaucratic obstacle in order to maintain their operations. The employee retention credit and the PPP both confront difficulties in terms of administration, with the former trying to offer clear criteria that are dependent on business size and the latter having to deal with difficulties in terms of demand and liquidity. When it comes time to pass new laws to address the coronavirus, decision-makers should carefully consider consolidating or reevaluating each of these programs.