The federal government's $2.1 trillion stimulus package, enacted last week, provides significant help for U.S. businesses, including loans to smaller employers that will be forgiven in exchange for maintaining their workforce during the coronavirus shutdown. And large businesses have access to government-backed credit if other avenues are closed to them. But there’s one thing they don't have — the government's explicit promise to pay their employees' wages while they’re not working.
In the U.K., the government’s message to employers is directed specifically at worker retention: "Stand by your workers because we will stand by you."
Details vary by country, but throughout Europe, governments promise to cover 70-80% of wages while workers are idled because of mandatory closures of restaurants, stores, and other businesses that put people in close contact with one another.
Chris Lee, CFO of U.K.-based digital ad agency Jellyfish, says his company is reducing its workforce costs by freezing non-essential new hires and reducing or eliminating contracts with third-party vendors if they’re not providing core services. But it's keeping employees on the payroll — in effect, standing by its workers, he told Digiday.
John Bason, finance director of American British Foods, which owns the Primark retail chain of 376 stores in 12 countries, says he’s taking extraordinary measures to cut costs but the company is nevertheless retaining its workforce of 78,000 while it waits for the U.K. government to step in with 75% of employee wages, which could come by the end of April.
"At the moment, retailers [in the UK] still have to front wage costs," Aneesha Sherman, an analyst with AllianceBernstein, told The Wall Street Journal.
Looking toward recovery
The idea behind the wage-assistance programs is, in some ways, less about the downturn and more about the recovery. In Denmark, which was among the first to step in with a promise of wage assistance, the goal from the start was to help companies ramp back up after the shutdown as seamlessly as possible.
"It’s going to be harder to have a strong recovery if companies have to spend time hiring back workers that have been fired," Flemming Larsen, a professor at the Center for Labor Market Research at Denmark’s Aalborg University, said in a Q&A with The Atlantic. "This way, the company maintains their workforce under the crisis and people maintain their salaries. You are compensating people even though they have to go home."
Larsen says the plan is to provide the support for three months, after which point the government will reevaluate. "They hope things come back to normal."
In the U.S., encouraging companies to maintain their workforce is clearly one of the top goals of the almost $1 trillion in loans to small and large businesses in the stimulus package. Under the $500 billion set aside for large businesses, companies must try to maintain employee levels at what they were before the outbreak and at a minimum not reduce headcount by more than 10% as a condition of assistance. There's also an employee retention credit available from the IRS.
Under the $350 billion for smaller businesses — those with 500 or fewer employees — the government is offering to make the loans forgivable if companies maintain the same number of employees through June that they had when the outbreak started.
As a forgivable loan, the assistance amounts to a grant, which is close to what the European governments are offering except it’s up to the company to determine the amount of money they ask for and what it goes to; there’s no requirement that it go to workers’ wages.
American workers are already feeling that lack of explicit help. Last week, unemployment claims in the U.S. jumped from about 211,000 to 3.3 million, the largest two-week increase ever recorded. Many of those people will have to be rehired once the shutdown ends, potentially slowing the recovery in a way the U.K. and other European economies might not face.