Mnuchin touted the program during a congressional hearing as having kept “tens of millions of employees connected to their jobs.” 

Labor groups are warning that newly enacted changes to a popular small business lending program will make the $670 billion relief effort less about protecting workers’ paychecks than protecting businesses.

The bipartisan bill signed into law by President Donald Trump lowered to 60 percent the amount that participants in the program must spend on payroll to qualify for full loan forgiveness from 75 percent — a change that could shift billions of dollars away from workers’ pay. The new rules also give businesses until the end of the year to spend the money, when previously, they had to use up the funds in eight weeks.

The so-called Paycheck Protection Program, created as part of the record $2 trillion coronavirus relief package that Congress passed in March, was aimed at giving businesses an incentive to keep paying their workers during the pandemic by turning the loans into grants if they retained most of their staff.

Now, unions say, businesses have more of an incentive to use the money for non-payroll expenses like rent.

“This change represents a huge loophole in legislation that was meant to help workers keep their paychecks coming during the economic fallout from the pandemic,” United Steelworkers Legislative Director Roy Houseman told POLITICO. “Rather than keeping the focus on maintaining payroll, however, the new threshold for loan forgiveness seems as though it was developed more with an eye toward putting money into business owners’ pockets.”

Treasury Secretary Steven Mnuchin touted the program during a congressional hearing Wednesday as having kept “tens of millions of employees connected to their jobs” and said it has saved 50 million jobs during the pandemic.

Many economists have also suggested that the unexpected job growth seen in the May unemployment report could be attributed to the program. The Labor Department reported last Friday that 2.5 million jobs were added to the economy during the month, upending predictions that payrolls would fall by 7 million.

While the number of workers who were rehired last month won’t be available until the Labor Department releases its monthly Job Openings and Labor Turnover Survey on July 7, economic indicators suggest that a long recovery is still ahead.

Labor groups and some observers fear that the rule changes to the Paycheck Protection Program will lead to less rehiring and an increase in layoffs, potentially thwarting early signs of a recovery in the labor market.

“Changing PPP gives businesses more time to delay rehiring workers, resulting in fewer paychecks for workers,” according to Aaron Klein, a fellow at the Brookings Institution. He says the new law shifts $76.5 billion originally allocated for businesses to pay their employees during the pandemic to other costs, like overhead, and in turn, is “reducing the share that goes to workers.”

Klein said the rule changes provide “businesses the ability to use government grants to pay their creditors, not protecting the paychecks of their employees.”

Damon Silvers, director of policy and special counsel for the AFL-CIO, agreed. He said he’s concerned that the changes “are going to lead to employers pocketing the money and not hiring, and not protecting anybody’s paycheck.”

Business groups said the changes in the lending program were needed because the economic effects of the pandemic have lasted longer than Congress had expected, and the requirements for loan forgiveness were too burdensome. States have also instructed certain businesses, such as those in the restaurant and travel industries, to reopen in limited capacities, which businesses say prevent them from bringing back their full staff.

“Congress had to act quickly to provide flexibility to account for different business structures and operating expenses to make the program work,” Rep. Chip Roy (R-Texas), who co-sponsored the legislation, said in a statement after the bill passed.

Rachel Greszler, senior policy analyst at the Heritage Foundation, disagrees that the changes to the program will lead to layoffs.

“Businesses need a little more flexibility,” said Greszler. “A lot of those businesses who were forced to shut down had to rehire and retain employees, or secure new inventory, or establish vendor relationships, or settle balances. There are a lot more costs involved with starting up than if this had been a very short shutdown.”

The changes to the payroll requirements of the program were originally proposed to be much broader until a pushback from organized labor. The bill by Roy and Rep. Dean Phillips (D-Minn.) would have eliminated the payroll spending requirement altogether, but that was scaled back after more than a dozen labor leaders warned that it would create “a disincentive for employers to retain or rehire workers.”

Neither Phillips nor Roy responded to a request for comment on this article.

While unions were able to convince Democrats to move the payroll spending threshold down to just 60 percent, many are still concerned the rule changes undermine the program’s goal of keeping workers.

The Small Business Administration and the Treasury on Monday said businesses would still qualify for partial loan forgiveness under the PPP, even if they fell short of the 60 percent requirement.

“Thank goodness the House didn’t pass its original bill which would have completely eliminated the paycheck protection part of the PPP,” said D. Taylor, president of UNITE HERE, which represents hotel, gaming, food service and other workers. “The fundamental problem is that the big corporations and private equity firms that own hotels are desperate for a government handout so they can postpone the day of reckoning with their lenders, but the last thing they want to do is provide laid-off workers with paychecks or health benefits.”

Mnuchin and SBA Administrator Jovita Carranza faced questions from the Senate Small Business Committee Wednesday on the implementation of the program, but not a single senator from either party raised concerns about layoffs.

This blog originally appeared at Politico on June 12, 2020. Reprinted with permission.

About the Author: Rebecca Rainey is an employment and immigration reporter with POLITICO Pro and the author of the Morning Shift newsletter. Prior to joining POLITICO in August 2018, Rainey covered the Occupational Safety and Health administration and regulatory reform on Capitol Hill. Her work has been published by The Washington Post and the Associated Press, among other outlets.