Employers struggle to compete with $600 coronavirus unemployment payments

The CARES Act is providing extra money on top of usual unemployment checks.

May 21, 2020, 5:01 AM

As a producer of personal protective equipment, Carl Livesay was eager to rehire his 60 employees and get operations up and running at the Baltimore-based manufacturer Maryland Thermoform Corporation once its forgivable government loan came through.

But with some workers earning more staying home because of the enhanced unemployment benefits provided by the CARES Act, the company has struggled to restore its headcount -- putting it at risk of violating the terms of its stimulus loan through the Paycheck Protection Program, which calls for employers to retain three-quarters of their payroll.

"It's been very difficult to get some people to return to work," Livesay, the vice president of operations for Maryland Thermoform Corporation, told ABC News. "In some cases, depending on what their compensation was, they make more money with unemployment and the federal stipend of $600 a week."

"There are significant unintended consequences," Livesay, who is also advising Maryland Gov. Larry Hogan on reopening the state's economy, said of PPP. "I'm hoping that they give us some extra time to get up to full staff. We're interviewing three to five people a day for jobs we have open, and we can't even get them to show up for interviews."

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Legally, if someone is offered reemployment and turns it down, they're likely to lose their unemployment insurance. But employers like Livesay are still finding it challenging to bring people back to work because of an unexpected decision: Should they rehire workers who stand to make more money on unemployment?

The Paycheck Protection Program, rolled out in early April, provides small businesses with money to get 75% of their workers back on payroll within eight weeks, while federal pandemic unemployment compensation, which boosts unemployment for every American by $600 per week, was created to protect the over 36 million Americans who can't go back to work.

PHOTO: A sign announces the closure of the Massachusetts Unemployment Office, Saturday, May 9, 2020, in Boston.
A sign announces the closure of the Massachusetts Unemployment Office, Saturday, May 9, 2020, in Boston.
Michael Dwyer/AP

But across the country, small business owners have found themselves caught in the crosshairs of the two popular government programs.

"PPP is essentially the government providing forgivable loans to keep people on the payroll. [The extra unemployment money] provides an incentive to not have people on the payroll," said Noah Williams, director at the Center for Research On the Wisconsin Economy at the University of Wisconsin.

"They seem pretty clearly in opposition to me," he said.

In an effort to address this, the Small Business Administration recently updated its guidance, allowing businesses to still get their loans forgiven even if laid-off employees decline rehiring offers.

For Shannon Schroeder, owner of The Pilates Studio in Glendale, California, weighing her own businesses financial well-being against that of her employees is one of the hardest decisions she's faced as a small business owner.

She told ABC News even her top instructors, who used to work up to 20 hours a week, are making more money on unemployment than they were working for her.

"And then some of my very part-time teachers are making quite a bit more," Schroeder said of the employees who would only teach a few classes a week. "I'm so grateful that they're being taken care of right now and they're not struggling."

But if the government allows her to reopen, and she decides to do so, she'll have to ask those teachers to forego unemployment and return to work at a business that she says will "be lucky to reopen at 50%." For her teachers, that would mean a decrease in weekly income.

PHOTO: A man wearing a face mask walks past a sign "Now Hiring" in front of a store amid the coronavirus pandemic on May 14, 2020. in Arlington, Va.
A man wearing a face mask walks past a sign "Now Hiring" in front of a store amid the coronavirus pandemic on May 14, 2020. in Arlington, Va.
Olivier Douliery/AFP via Getty Images

The federal government's $600 weekly unemployment bump was designed to quickly get money out the door and buoy the economy under the pressure of massive, record-breaking job loss. That sum was picked as a flat rate because it would boost the average American worker's wage up to 100%.

Normally, unemployment insurance provides about 45% of wages. In order to keep people safe and at home while trying to stabilize the economy, the CARES Act included a provision to supplement unemployment enough to provide most people 100% of their lost wages.

"Nationally, the average weekly benefit is around $370 a month. The average weekly wage is around $970 a month. So $600 is the difference between the two," Michele Evermore, a senior policy analyst for the National Employment Law Project, told ABC News. "And so $600 was passed to approximate 100% income replacement for a few months while the economy needed to be shut down to deal with the health crisis."

An unintended consequence, however, was that roughly 40% of workers made less in their jobs than they would on the new unemployment, according to national data gathered by Williams at the Center for Research On the Wisconsin Economy.

In certain states, the unemployment boost is more pronounced. More than 50% of people who are on unemployment and the additional $600 from the CARES Act in states like Arizona, Kansas and Montana would earn more than if they were working, Williams found.

In an ideal world, each state would've had the capabilities to design their unemployment systems to pay each individual person 100% of their past wage, instead of doling out a flat rate nationwide, Williams told ABC News.

But unemployment systems around the county have been bogged down by a flood of claimants, plus the task of building out an unemployment system for people who weren't previously allowed to apply for the assistance, like the self-employed and gig workers.

Already, the systems were far too overtaxed. To take on an individualized project like that would require brand new calculations for each person's unemployment benefits.

And while the extra $600 isn't excessively more than 100% of what many workers used to make, particularly "in the depths of the crisis," noted Williams, "Going forward, it's much more of an issue."

But whether that $600 has become a disincentive for people going back to work is a far more nuanced conversation, said Evermore.

"People go back to work for all kinds of reasons. People want that stability, they want their health insurance and any contribution to retirement that they might have been getting. And so once you factor all that in, you know, getting a little bit of extra money for a couple of months doesn't compare," Evermore said.

It's also impossible for Americans to plan around the boosted unemployment. It's slated to end in late July, and a measure to extend it through January was a non-starter in the Republican-led Senate.

A job, if workers can find one, would likely offer better long-term stability than relying on Congress to extend the unemployment boost.

"It's not clear what will happen after July, so if you do get a job offer, turning it down in the hopes of staying on unemployment and getting something as good or better in the future is also questionable," Williams said.

There are also more nuanced options for employers who want to begin slowly reopening but know they won't be giving out the same paychecks or offering the same hours.

PHOTO: A dishwasher foma restaurant. Minimum wage.
STOCK PHOTO/Getty Images

Partial unemployment, for example, is available for workers who head back to work but have reduced hours and pay.

Work sharing, another option, allows employers to hire people back for fewer hours while getting a proportional unemployment insurance benefit, plus the additional $600.

But given the threat of coronavirus, staying home and collecting unemployment rather than going to a job that requires in-person work might carry another benefit: It allows people to safely slow the spread of coronavirus.

To Schroeder, the Pilates studio owner, the calculations are immense: Not only does she have to consider her employees' financial well-being, but until a vaccine is available, it also must be balanced with the risk of a deadly virus.

"If [my teachers] say that they're too nervous to come back to work, does that compromise their benefits?" she said. "I worry about that. One more thing I'm not responsible for but, but that crosses my mind, like how to delicately handle this?"

She said the decision to ask her teachers to come back to less pay and potential health risks does weigh on her.

"The weight of feeling responsible for providing a safe environment weighs on me when I know that that's not really possible," she said. "We can clean, and disinfect, and wear masks, and keep our distance, but I feel like everyone takes a calculated risk right now when they're going anywhere. So, as the owner, that weighs on me, like keeping my teachers and clients safe. Is it even appropriate [to open]?"

ABC News' Lauren Lantry and Benjamin Siegel contributed to this report.

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