Does the Stimulus Help Restaurants?

COVID-19 has taken over our lives as we know it. Whether your state’s stay at home orders started in late February, early March, mid-March or later, it is getting more difficult to remember how we used to conduct business. And restaurants are hit particularly hard, as most employees cannot work remotely and consumer spending power is low. Indeed, retailers in all industries have had to make abrupt decisions affecting their employees, customers, and the supply chain. 

WILL EMPLOYEES RETURN TO RESTAURANTS?

Several retailers, other than food manufacturing, grocery, and delivery, furloughed more than 50 percent of their employees and moved operations to online only. Seemingly a good plan, it became shaky as time progressed because uncertainty about the virus increased. Companies asked themselves:

• Is it safe to have employees working in the warehouse, preparing shipments?
• Does it make sense to slash prices by 30 percent or more?
• How do we preserve brand loyalty while conducting sales marketing during the pandemic?
• Are our employees better off working part-time or being laid off?
• How long can we sustain our business with a broken supply chain?
• Restaurateurs had other issues with which to contend including:
• How do I keep my employees safe when they are encountering multiple people?
• Where can I find masks, gloves, etc.? Quantities are scarce or prices are too high.
• Farmers and meat processing plants are unable to produce what I need.  Do we limit the number of items each consumer can buy?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted by the Federal Government, meant to address unemployment and cashflow. However, several gaps appear in the law and companies need to make careful decisions.  It is impossible to discuss all aspects of this 880-page law in a short article, but a few sections may be of interest to the restaurant market.

Paycheck Protection

Small employers with less than 500 employees can apply for a loan that covers, amongst other things, salaries, paid sick leave, group healthcare benefits, employer pension contributions, and commissions, up to $100,000 per person. Federal taxes on those wages as well as wages for individuals residing outside of the U.S. are excluded. If at least 75 percent of the loan is used for payroll costs for the 8 weeks immediately after funding, the loan will be forgiven. If not, employers will have 24 months to repay the loan at an interest rate of 1 percent. 

Luxury brands and retailers can rehire employees previously laid off will not be penalized if they rehire employees and/or eliminate the reduction in salaries by June 30, 2020. 

Given all that, restauranteurs should ask themselves the following: (1) Do I agree to pay employees, particularly sales persons, to stay home for 8 weeks (presuming businesses will continue to be closed through June 30, 2020) and (2) If I keep individuals on payroll because I received a Paycheck Protection loan, do I agree to pay for up to 12 weeks of paid sick leave if the employee becomes ill with COVID-19 while they are home? For those who can operate because they are deemed essential, do they have enough business to sustain themselves? The law does not parse which companies are essential. But, if you are a confectionary, for example, it may not be worthwhile to operate. The same hold true for specialty food shops who are accustomed to selling higher priced merchandise. 

Expanded Unemployment Benefits

Under the CARES Act, unemployment benefits are available for those impacted by COVID-19 retroactively to January 27, 2020 and ending on or before December 31, 2020. Benefits will continue for up to 39 weeks. Individuals will receive the State statutory unemployment benefits ($504 per week in NY) plus $600 each week for up to four months (that’s $1,102 per week in New York). After four months, benefits drop to the state statutory amounts.

Unemployment benefits of $1,102 per week are the equivalent of a $57,304 annual salary, presuming the enhanced benefits continue for a year. Even with enhanced benefits for up to four months, it is likely more profitable for several individuals to stay home, at least until those benefits expire.

Paycheck Protection and Enhanced Unemployment Benefits seem to work in direct opposition and will test the philosophy and ideology of luxury businesses and employees alike. Thankfully, in early May, the government clarified that employers will not be penalized regarding PPP loan forgiveness if they offer employees their jobs back at the same rate of pay (up to $100,000) and for the same number of base hours if the employees refuses to return. Employees who prefer to stay home with enhanced unemployment benefits may forfeit those benefits for refusing to return to work.

The problem is seemingly solved. However, what happens on July 1, 2020, when retailers exhaust their PPP loans and companies are still closed for business?