Should I Furlough Employees or take out a PPP Loan?

Apr 3, 2020 | Blog

As we hit April 3, a lot of small employers are scrambling to file for Paycheck Protection Program loans under the newly enacted CARES Act.  However, the PPP was only one of the provisions of the CARES Act designed to help employers and employees.  One of the other provisions significantly enhanced unemployment benefits, which through unintended consequences may actually mean that some employees (and employers) are better off forgoing the PPP loan and furloughing employees.

Of course, several factors go into your decision, including the salary of your workforce, whether you still have revenue coming in, mortgages to pay, etc.  However, based on quick math there is the case that in some circumstances the temporary furlough/Unemployment approach might be the best path for your business, which then may allow you to take some of the other tax relief under the Act.

Let’s explain:

Using Georgia as our example, unemployment benefits are based on earnings over the prior 4 to 5 quarters.  The formula uses the highest 2 quarters, adds them together, then divides by 42.  This sets the weekly rate which is then subject to a minimum weekly amount of $44 to a maximum of $330.  Under normal times this would have lower income workers earning just over 60% of prior wages, which then scales down as income goes up.  Someone earning only $14 per hour/$29,000 annually is already hitting the $330 weekly cap.

However, the CARES Act added an additional $600 per week on top of the state calculated unemployment benefit, meaning that $330 cap is now $930 effect with the passage of the act through July 31, 2020.  Using that same calculation, a person previously earning $14 per hour ($560 per week) would now receive $930 in UI benefit…$370 MORE than they were regularly paid!  In fact, it is not until someone makes approximately $23.25 per hour/$48,000 per year that we even hit a “break even” point where the $930 approximates their current weekly wage.

OK…pause here:

It is clear this was not what was intended by Congress.  It does, however, fall into the land of unintended consequences.  We are aware of some employers who have employees requesting to be furloughed in order to take advantage of the higher UI benefit.  In most cases, what it comes down to is the current state of your business and how quickly you expect to recover once the lockdown eases.   If you are in the hospitality and restaurant arena where revenues have completely stalled, letting your employees collect UI for the short term may be much better for them than taking the 8 week PPP loan.

Final thoughts

We clearly ignored a few key items here, like whether you have funds to pay mortgages, rent, utilities, etc.  We also ignored the potential cost of benefits (if you offer them) or if you have a mix of higher and lower paid salaries in your workforce.  Another big assumption is the impact to your business is temporary and doing a furlough (vs a more permanent layoff/reduction in force) makes sense.  What we did want to do is encourage you to understand all your options under the new regulations and pick what is best for you and your workforce.

Lastly, don’t forget that in a furlough/reduction in hours situation the State of Georgia also requires employers to file the weekly claims on behalf of their employees or be subject to the entire cost of the UI claim.  Consult your payroll provider as they can help do this on your behalf.

Remember, you have options.  Be sure you understand what works best for you and your business.

As always, please reach out if you have any questions.   The CTCS Group is here to help.

Chris Thomas, SHRM-SCP is the Principal Consultant with The CTCS Group in Canton, GA.  The CTCS Group is focused on providing HR Leadership, Behavioral Assessments, and Consulting to help small businesses grow and thrive.  You can subscribe to this blog or request a free consultation at

Disclaimer:  The information and recommendations provided in this document should not be considered legal advice and should not substitute for legal advice where the facts and circumstances warrant.  Recommendations are provided based on good faith assessment and interpretation of the available legal and regulatory resources.

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