Economy

Looking At The Payroll Pressures SMBs Face — And What’s To Come

What will the 42 percent solution be?

Recent PYMNTS data show that 42 percent of Main Street small and medium-sized businesses (SMBs) have reduced payroll to help mitigate the financial impact of the pandemic.

Desperate times, as they say, call for desperate measures, and of course cutting staff is among the most painful (and drastic) measures a company can take to maintain cash in the bank, or capture more cash flow.

And it might be said that for at least a significant number of firms, the times are tough. Consider the fact that in its recent report, Main Street’s Six-Month Checkpoint: The State of Main Street Business Amid the Pandemic, the companies surveyed said have been enduring the pandemic longer than they ever expected to. Back in March, respondents said they expected the pandemic would last roughly 177 days — we are well past the 220-day mark.

The longer the shock to the system, the more belt-tightening has had to happen. Cash, after all is finite, if sales do not keep rolling in. As many as 72 percent of firms surveyed by PYMNTS said they do not have enough funds to stay open for more than a month in the event of a revenue disruption.

The payroll reductions — whether by cutting staff or paying people less — have increased. Whereas 42 percent of companies said that they had taken such actions in the latest survey, that number is up from 32 percent in May.

The cuts come in a lopsided way: More than 50 percent of companies that said they are at risk of closing cut payroll; that compares unfavorably to the 34 percent of firms not seeing such risk having to do so. A significant percentage of both cohorts — a respective 44 percent and 34 percent — reported having applied for Paycheck Protection Program (PPP) loans to stay afloat. Among the sectors hardest hit that reduced payroll: restaurants, where 67 percent of them cut that line item, followed by about 55 percent of retailers.

And, about that PPP: SMBs applied for it, and either got the funds or didn’t and, as late as the six-month mark (as PYMNTS found), were still left wanting. The PPP, of course, has seen demand peter out, with billions left in the till, and with allegations of fraud.

The service economies, then, the folks who man the registers, take the orders and grab the inventory, are the ones most at risk of being thrown out of work or at least taking home thinner paychecks.

And the trend is likely to continue, even amid reopening, which will only partly add to the digital sales or delivery surges that have been hallmarks of the great digital shift. As states reopen, capacity is limited in venues, which implies less need for in-person staffing.

Layoffs remain stubbornly high. Among the latest data point: Thursday (Sept. 17), the Labor Department reported that initial unemployment claims came in at 790,000, below the 866,000 seen the previous week. But the claims are still elevated, where once the rate was about 200,000 weekly. On a seasonally adjusted basis the latest data showed 860,000 initial claims, down from the previous week’s 893,000.

The absence of concrete stimulus or enhanced unemployment benefits, along with the difficult employment picture, may not bode well for the coming months of retail sales — where the holidays loom, of course. When 60 percent of consumers live paycheck to paycheck but the paychecks are elusive, purse strings tighten. Retail sales, after all, were up only about 60 basis points in August (as measured over July).

No easy fixes are in sight, but waiting it out is getting tougher.

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NEW PYMNTS DATA: HOW WE SHOP – SEPTEMBER 2020 

The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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