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Small Businesses Are Rehiring Staff -- but Cutting Hours and Wages

By Maurie Backman – Jul 17, 2020 at 7:18AM

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Though small business head counts are now comparable to pre-pandemic levels, employee earnings have taken a turn for the worse.

Though the COVID-19 crisis and subsequent recession have had a harsh impact on the entire U.S. economy, small businesses have taken a particularly hard hit. Many were forced to close down entirely when lockdown measures were imposed earlier in the year in an attempt to quell the outbreak, and a large number are still struggling to recover.

Thankfully, small businesses were entitled to some relief to get through the crisis. The much-talked-about Paycheck Protection Program, in fact, was instrumental in helping to minimize layoffs while allowing businesses to continue operating.

But despite the struggles small businesses may have encountered over the past few months, most have managed to rehire enough staff to return to pre-pandemic headcount levels, according to a new report by payroll-service Gusto. Specifically, small business hiring grew 2.4% in June.

Seated woman in apron with sad expression

Image source: Getty Images.

That doesn't mean things are (small) business as usual. While head counts may have increased to the point where they're hovering near pre-COVID-19 levels, many small business employees are still struggling with reduced wages and hours. In fact, the number of salaried workers who have experienced at least a 10% pay cut increased by 80%, compared to pre-pandemic levels. And in the absence of additional relief, small businesses may need to further reduce workers' hours and earnings to avoid having to resort to layoffs.

One round of PPP funding wasn't enough

The reason so many small business employees are seeing their hours and earnings reduced could boil down to the fact that many companies that received PPP loans are already out of that money. PPP loans were capped at 2 1/2 times a business's monthly payroll costs, and many companies received those loans back in April or May.

At this point, much of that money has likely been exhausted. While those loans may have been instrumental in restoring jobs, the fact that hours and wages are being reduced paints a clear picture: Small businesses need additional relief.

Of course, PPP loans aren't the only financing option available to struggling small businesses, but their appeal stemmed from the fact that they were totally forgivable, provided that 60% of their proceeds were used to cover payroll expenses. Even among small businesses that weren't eligible for PPP loan forgiveness, those loans were still enticing. With a two-year maturity and interest rate of just 1%, they represented an extremely low-cost way to borrow.

In the coming weeks, lawmakers will be tasked with hammering out a second relief package to follow the CARES Act that was passed in late March. If that relief package doesn't include provisions for small businesses that are comparable to the PPP or a second round of PPP loans for businesses that have already received them, head counts could plummet dramatically during the latter part of the year.

Even if that doesn't happen and small businesses are somehow able to maintain staff, there's a good chance the people who work for them will struggle financially by virtue of being underemployed for at least the remainder of 2020.

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