Small Business Loans Alone Won’t Help U.S. Workers. Congress Must Use the Payroll Tax

Over the last month, the federal government has made nearly $700 billion available to small businesses through the Paycheck Protection Program. This program was intended to keep small businesses afloat and their employees on payroll through June. But with 33 million people having filed for unemployment in the past 7 weeks, it feels like too little, too late for many Americans.

The PPP rollout has been rocky at best. Countless businesses are still waiting to hear whether their loan applications have been accepted. Others have decided not to bother with PPP, citing confusing loan forgiveness criteria or that employees are better off seeking unemployment coverage. Indeed, even with PPP funding, the average business can only survive for 69 days.

To date, just over 4 million small businesses have received PPP funding — and this includes many franchisees of very large businesses. This is only 13 percent of the 30.2 million small businesses in the country. Even those businesses that have received PPP loans are only covered for eight weeks. PPP coverage will start to run out in June, yet it’s clear that many businesses will remain closed or operating at partial capacity for months longer. Adding more money to the complicated PPP system every few weeks is not enough — the federal government must use additional tools to ensure funding gets to business and their employees faster and sustains them for longer.

One of these tools is the employee retention tax credit included in the CARES Act, which provides an incentive for businesses to keep people employed. It provides a refundable tax credit of 50 percent for up to $10,000 in wages paid by an employer that has been financially impacted by COVID-19. The ERTC covers wages paid between March 12, 2020, and Jan. 1, 2021, and is fully refundable.

However, businesses are not allowed to receive both the ERTC and a PPP loan. Many businesses have found it confusing to navigate which is the best option for them, especially with multiple changes to each program by the IRS, SBA, and Treasury. To make the ERTC more effective, Congress must expand this credit both in dollar amount and duration and eliminate the PPP restriction.

Several members of government, including Sen. Josh Hawley (R-Mo.) and Rep. Pramila Jayapal (D-Wash.), have also proposed sending money to individuals using the payroll system through a negative payroll tax. Using government funding, payroll companies would advance funds to small businesses directly to pay their employees, which would keep workers employed and the business operating. Unlike the PPP, the negative payroll tax is not a loan and does not require intermediaries like banks. Instead, it uses existing infrastructure that already facilitates payments to workers to get relief out faster. Similar programs have been set up in Ireland, Spain, France, Germany, England and many other countries, and have been successful at both keeping people employed and keeping small businesses more equipped to reopen after the crisis.

As Congress heads into negotiations for the next COVID relief package, we need to ensure that additional relief goes to businesses that need it most, and their employees. Data from our company Gusto, which has 100,000 small business customers in the United States, shows that low-income workers, young people, and those that live in low- or middle-income communities have been most impacted by the pandemic. They need more direct and faster relief than PPP can get to them.

We urge Congress to use the most targeted and efficient process to benefit workers and small businesses: The employee tax retention credit and the negative payroll tax are important tools that should be optimized quickly. Further, public-private partnerships should be utilized to leverage the existing access and infrastructure of companies like payroll providers to distribute aid quickly and efficiently.

Businesses and their employees will be struggling with the economic impact of COVID-19 for well over eight weeks. Recovery will take many months, and long-term solutions are needed. The 87 percent of small businesses that haven’t received PPP — and the 13 percent whose PPP will run out in the next month — need more from our government.

Josh Reeves is CEO and co-founder of Gusto, the people platform that provides modern payroll, benefits, compliance and expert HR to more than 100,000 small businesses across the United States.

Megan Niedermeyer, head of Legal & Compliance at Gusto, has over a decade of experience helping organizations effect positive change and has provided legal counsel to companies large and small.

Jeanette Quick is lead counsel for Financial Services and a widely recognized expert in fintech and financial services who previously served as senior counsel to the Senate Banking Committee, where she was the lead adviser on consumer finance, and senior attorney at the Office of the Comptroller of the Currency.

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