Small businesses feeling the impact of coronavirus on job and wage growth

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Small businesses that had been experiencing steady job and wage growth prior to the outbreak of the coronavirus pandemic are seeing that situation change, according to figures from the payroll giant Paychex.

Paychex and IHS Markit’s monthly "Small Business Employment Watch" indicated a decrease in both small-business employment and wage growth. The report is based on data only through March 19, a time when many businesses began to modify operations as a result of the COVID-19 outbreak, so they’re likely to show much steeper drops in employment and wages in next month’s report.

The jobs index slowed only 0.11 percent to 98.21 from mid-February to mid-March, and 0.57 percent year-over-year. Hourly earnings growth dipped only to 2.68 percent ($0.72), while weekly earnings growth also dropped to 3.08 percent. On a regional basis, the West had the steepest employment growth decline in March, down 0.19 percent. Weekly hours worked growth in the West also declined considerably in March as the one-month annualized growth rate fell 2.47 percent.

Weekly-hours-worked growth also fell sharply in the leisure and hospitality sector in March, with the one-month annualized growth rate falling 6.58 percent. Small-business job growth in leisure and hospitality was also down 0.39 percent, slowing the most among industry sectors during the first quarter of 2020. Overall, Paychex found that the positive earnings growth momentum it saw toward the end of 2019 has now reversed during the first quarter of 2020.

“We’re hearing about a lot of [small businesses] closing their doors, but a lot of them are hanging on,” said Frank Fiorille, vice president of risk management, compliance, and data analytics at Paychex. “They do see an end to this.”

He believes that many small businesses are aware of the stimulus package passed by Congress last week, known as the CARES Act, which includes provisions for helping small businesses that retain their employees on payroll. equal to 50 percent of the qualified wages paid by the employer with respect to each employee. The CARES Act includes an employee retention tax credit that covers 50 percent of employee wages, up to a cap of $10,000 per employee per year. Small businesses can also get loans of up to $10 million from the Small Business Administration under a new Paycheck Protection Program to cover eight weeks of payroll, and the loans are forgivable as long as the business retains its employees for that period.

“The new SBA loan provisions, the payroll protection plan, a lot of clients are very interested in that,” said Doug Bekker, a tax partner at BDO USA. “If they retain their employees, the loan gets forgiven, so it basically becomes a direct cash infusion. But for taxpayers who don’t qualify for that, there is the employee retention tax credit, which was put into place. It allows larger taxpayers who don’t qualify for the SBA loan to potentially get a credit of up to $5,000 covering 50 percent of employee wages. It can cover $10,000 of employee wages, and the government will chip in half of that for employees that you are retaining, but aren’t providing services. The thought there being that if you are shut down — and that is one of the requirements: you have to be shut down by either government order or your revenue has to have dropped by a considerable amount — if that’s happening and you’re retaining employees who are idle but you’re continuing to pay them, you can get this credit. Obviously that can be a nice cash infusion for companies in that situation.”

Fiorille pointed to small businesses trying to be creative by furloughing a few workers while keeping the business up and running, at least for now. He noted that businesses were in a strong position before the coronavirus hit.

Last year, the biggest issue for many small businesses was finding enough qualified employees to do the work, and many of them remain hesitant to let their workers go. Nevertheless, the U.S. Department of Labor reported last week that 3.3 million workers applied for unemployment benefits in the previous week, and economists are predicting this week’s report will show that 3.5 million jobless claims were filed last week.

“I would anticipate that last week and this week are probably going to be tough weeks,” said Fiorille. “We definitely are seeing a deterioration.”

He advises accountants to tell their small business clients to stay up to date with the latest government programs available to help them deal with the crisis. Paychex is working with the American Institute of CPAs and several other payroll providers in trying to convince the Treasury and the IRS to use their commercial payroll programs to get the money out to small businesses faster, which helped in the aftermath of Hurricane Katrina (see our story). However, so far, the Treasury and the IRS are still planning to use the government’s own payroll facilities.

“I do think the Treasury is really trying to move fast here,” said Fiorille. “They recognize they’ve got to make it as simple and as easy as possible, with very low documentation. They obviously do have to control for the fraud, but I think they are really trying to get money in their hands very quickly here.”

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Small business Payroll Paychex Coronavirus Tax credits SBA BDO USA