Center Survival Guide: Your childcare staff makes more money on Unemployment. What now?

Does your Childcare Center need a Lifeline when it comes to the CARES act?

Our recent webinar, Center Survival Guide: Navigating the CARES Act and Keeping Revenue Flowing During the COVID-19 Pandemic covered a great deal of information, particularly about the CARES Act provisions most beneficial to childcare centers and preschools:

  • The Paycheck Protection Program and PPP loan forgiveness
  • Emergency Injury Disaster Relief loans
  • FICA tax deferral
  • Above-the-line tax deductions for donations

Our post-webinar Q & A revealed some great questions, including this hot topic that many childcare organizations are experiencing right now:

“My childcare staff is making more money collecting unemployment benefits due to the CARES Act, and they don’t want to come back to work to make less. This will impact my eligible expenses for PPP loan forgiveness. What can I do?”

“My childcare staff is making more money collecting unemployment benefits due to the CARES Act, and they don’t want to come back to work to make less. This will impact my eligible expenses for PPP loan forgiveness. What can I do?”

This question struck a chord with many, as it is something center and program directors are experiencing across the board right now.

Why is unemployment so appealing to childcare staff right now?

unemployment compensation is appealing to lower paid childcare staff

It’s hard enough to hire and retain great childcare staff without competing with unemployment compensation. Learn the secrets to finding and keeping these hidden gems.

The CARES Act provides for an additional $600 per week in unemployment compensation per furloughed employee, which equates to about $15 per hour in additional compensation above what unemployment would normally pay. For those workers, the additional income is the equivalent to what their paychecks would look like if they earned $31,200 per year – and that’s without the normal unemployment benefits that are typically about 50% of normal wages.

According to the Bureau of Labor Statistics, the median pay for childcare staff as of May 2018 was just $11.17 per hour. That’s $23,240 per year. It’s also over $150 less per week than what they could collect from just the CARES Act portion of their current unemployment compensation. For your lower paid staff, staying home is not only saving them gas, tolls, and lunch money, it’s giving them a substantial raise.

That’s a 33% raise, even if it is only for a few months. And that is incentive enough for your childcare center staff to stay home once you’ve sent them there.

The Downsides to Unemployment

There are certainly downsides to unemployment to consider:

  • Hassle and delays in the application process – whether they’re standing in line with close to 22 million other people this month or navigating your state’s unemployment website for the first time, there are going to be hiccups. Those hiccups can lead to delays in getting paid, and for your childcare staff living paycheck to paycheck, hoping the money will come through on time for a car payment or trip to the grocery store is not ideal.
  • Psychological and emotional effects – fair or not, there’s a stigma associated with unemployment, and the range of emotions of someone who is out of work and relying on public assistance can run from fear, anxiety and embarrassment to anger, resentment, and depression. And that’s just the top of the iceberg when it comes to losing the safety and dignity of gainful employment.The unemployment line and the waiting game are major downsides to choosing to stay out of the workforce.
  • Risk of not having a job when the COVID-19 crisis is over – the financial effects of the pandemic aren’t going to disappear once stay-at-home orders are lifted and people return to work. The small businesses like retail shops and restaurants we frequented before the word Coronavirus became a household name may not survive. That means less parents re-entering the workforce right away and a reduced need for childcare in the early goings. Will you bring back childcare staff you don’t need when they refused to come back when you actually needed them?

So what are your options?

Finding the right solution for your organization

Furlough your lower paid staff

The PPP loan still provides an extremely cost effective way to borrow money that can be used for other expenses, like rent, utilities, compensation for yourself, and compensation for any childcare staff you were able to retain. The lower paid staff will reap the benefits of the augmented unemployment income described above, but the impact on loan forgiveness will be less than if you had furloughed all of your staff or your highest paid employees.

You can still seek loan forgiveness for eight weeks of payroll expenses and your other qualified expenses, but remember — no more than 25% of the forgiveness amount can be for non-payroll expenses.

Explore other options within the CARES Act provisions

If the loan forgiveness is what made the PPP loan attractive to you, but the amount eligible for forgiveness is reduced because of low employee retention, this may not be the best option for you right now. Forego the PPP loan in favor of other resources like the FICA tax deferral, employee retention credits, or EIDL loans.

Check out our complete Center Survival Guide webinar for more information about these other programs.

You can achieve the right balance between unemployment and getting the most of your CARES Act PPP resources

Achieving the right balance of reduced hours and unemployment benefits

For many centers, the best option may be to retain childcare staff with reduced hours. Your employees will still be eligible for unemployment benefits, though at a reduced rate since they are not fully unemployed, but they will still be entitled to the $600 per week supplemental benefit.

This can be a great outcome for your staff when they combine their unemployment with what you pay them. Your center may not receive full PPP loan forgiveness, but by setting wage reductions correctly, you can take full advantage of forgiveness of all your qualifying non-payroll expenses.

As always, we encourage you to discuss your options for CARES Act resources and childcare staff reductions with your accountant, banker or other professional advisors.

More Center Survival Guide Q & A

Other hot topics from our Center Survival Guide webinar included questions like:

Is 100% staff retention required for PPP loan forgiveness?

My center is part of a religious organization. Do we apply for the PPP loan, or does the church?

Check out more answers to great questions in our Center Survival Guide Webinar Q & A, and stay tuned for more great information in our COVID-19 resource library.

Written by: Wendy Young on Apr 23 20

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