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4 ways the coronavirus law pays small businesses to keep workers


A tattoo parlor is temporarily closed in the Brooklyn Borough of New York, U.S., on Friday, March 20, 2020. Photographer: Gabby Jones/Bloomberg via Getty Images


The $2 trillion coronavirus relief law signed by President Trump last week has several incentives for struggling businesses to retain their employees instead of laying them off.

The financial help in the CARES Act includes forgivable loans for small businesses, tax credits and deferrals, and measures around unemployment. They come as employers are getting walloped by the economic fallout from COVID-19.

“I see an emphasis in a lot of the provisions of the bill as trying to keep people employed during this period,” said Susan Houseman, director of research at the W.E. Upjohn Institute for Employment Research. “Having people there, ready to work, ready to go, will speed a recovery” of the economy, she added.

Small business loans

The provision that may be most effective is a $350 billion loan program for sole proprietors, independent contractors, self-employed individuals, nonprofits and businesses with fewer than 500 employees, experts said.      

The low-interest loans, created under the Paycheck Protection Program, offer up to $10 million to fund certain business expenses incurred between Feb. 15 and June 30.

Business owners may qualify to have some or all of their loan forgiven, for the portion used to cover payroll costs (excluding wages over $100,000), rent, utilities and mortgage interest — over an eight-week period.

Having people there, ready to work, ready to go, will speed a recovery.

Susan Houseman

director of research at the W.E. Upjohn Institute for Employment Research

But the amount of canceled debt, which would occur via a grant, largely depends on how many workers the business retains and the extent to which it reduces their salaries.

“You have to keep your payroll intact,” said Jay Shambaugh, an economist at the Brookings Institution, a think tank. “The amount of loan forgiveness gets reduced if you reduce your payroll substantially.”

Borrowers who laid off workers can reinstate their jobs and salaries by June 30 to recover credit toward loan forgiveness, according to David Newman, a partner at the law firm Morrison & Foerster.

The loan forgiveness is also excluded from a business owner’s gross income for tax purposes, Newman said.  

Similarly, a separate $500 billion loan program — the Coronavirus Economic Stablization Act of 2020, which gives assistance to airlines and other industries — stipulates that some borrowers must keep at least 90% of their employees through Sept. 30, according to Newman.

The Small Business Administration website has more details on the Payroll Protection Program and other loan assistance programs. The agency is expected to provide additional PPP guidance in the coming days, experts said.

A sign alerts bar customers that it is closed due to the coronavirus outbreak in Washington, D.C., U.S., on Tuesday, March 17, 2020. Photographer: Andrew Harrer/Bloomberg via Getty Images


Employee retention tax credit

Businesses and nonprofits that retain workers during the coronavirus health crisis can get a refundable payroll tax credit.

The credit, available through 2020 to ailing businesses, is equal to 50% of quarterly employee wages (up to $10,000 per worker). (It’s not available for businesses that also get a loan through the Paycheck Protection Program.)

The credit can be claimed against quarterly payroll taxes. The Treasury can make advance payments of the tax credit, and waive penalties for employers who don’t pay applicable payroll taxes in anticipation of receiving the credit.

Tax deferral

The CARES Act also allows small businesses to defer some payroll taxes this year.

Employers can defer their portion of the Social Security payroll tax — a 6.2% rate in 2020.

The measure won’t necessarily save firms money because they must pay the tax later. But it could help free up cash for struggling businesses, and firms only get the benefit to the extent they have workers on payroll, experts said.


The CARES Act gives federal money to states to pay unemployment benefits through “short-time compensation programs.”

These programs pay benefits to workers whose hours are reduced, typically by around 40% to 60%, depending on the state, Houseman said.

Short-time compensation programs are currently available in around half of states. Businesses offer them voluntarily.

But federal reimbursement gives an incentive for the remainder of states to quickly adopt these programs, and for employers to then offer them, Houseman said. That would prevent outright layoffs and give a financial backstop to supplement employees’ part-time income.

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Eligible furloughed workers and those who receive drastic cuts to work hours (more than 60%) can also expect bigger unemployment checks as a result of the new law.

Unemployment benefits replaced about 40% of wages for the average worker prior to the new law, according to the House Ways and Means Committee. The CARES Act aims for unemployment benefits to replace around 100% of the average worker’s salary.

“Now, furloughing employees doesn’t mean they’ll be taking this massive pay cut,” Shambaugh said.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.


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