Even though Congress moved quickly to pass a financial relief package, the money in that package is not getting where it needs to be fast enough. The CARES Act became law on March 27, and very little of its relief has reached those who need it. Each day that passes translates to more hungry families, more homes lost, more prescriptions for essential medicines not filled, and more suffering for those who are struggling. As lawmakers begin discussing the CARES Act, Part 2, they need a much quicker way to distribute funds. The payroll processing system should be considered as a way to get money to people faster.
In the CARES Act, Congress tried to use existing distribution structures to disburse relief funds. Cash payments use the existing IRS structure. State unemployment agencies administer increased unemployment benefits. The Small Business Administration oversees assistance to small businesses - intended to protect the workforce - as well as the lenders authorized to make small business loans.
As a practical matter, that hasn’t worked for many of those affected.
With a surge in applicants, state unemployment offices have been overwhelmed and applications aren’t going through. Cash payments to taxpayers have not begun and those who need them the most might have to wait for paper checks. The Paycheck Protection Program, intended to provide small businesses with loans to support their payrolls, relies on banks to administer the relief. Those banks are struggling to process hundreds of thousands of applications with little federal guidance.
As lawmakers discuss the next round of emergency financial assistance for the country, we should be figuring out now how to distribute funds faster and more comprehensively. Some of that may be done through fine-tuning the distribution systems currently in use. One additional option that has not yet been tapped is the one that places funds into the hands of workers across the country every week. Payroll.
According to a Deloitte survey from 2018, nearly all employers use third-party payroll processors for part or all of their payroll processing, and 89% offered their employees some form of online payroll self-service. Third-party payroll processors know how to deliver funds to workers, and they have robust record keeping. Employers that handle payroll in-house generally use standardized payroll software that keeps extensive records and allows consistent delivery of paychecks or direct deposits. Regardless of the way each business handles its payroll, it knows how to place money into the hands of its employees on a consistent basis.
And there is reason to think that a CARES Act Part 2 will include some form of wage replacement. The Washington Post reported proposals to have the federal government pay wages are coming from both a Democratic Congresswoman and a Republican Senator. The best way to make that work is to begin now to onboard the ability to use the payroll system for distribution as well as the guardrails needed to oversee the process.
If CARES Act Part 2 could tap into payroll systems, for instance by having companies provide certifications to the Federal Reserve or the Department of Labor about employees (including those laid off due to the COVID-19 crisis), salaries, and the bank account they use for payroll, the Fed could distribute funds directly into those companies’ bank accounts for distribution to employees and former employees. We would still need the unemployment system, but we could dramatically reduce the workload for state unemployment offices, which would increase the ability of those offices to meet claimants’ needs. And by using payroll infrastructure, we could provide relief in regular increments that would allow flexibility to adapt as the crisis continues to unfold.
We should be working now to make sure the next round of relief is distributed faster and more efficiently. That includes fine-tuning the systems currently in use but also adding those that have not yet been tapped. Payroll processing should be one of the tools lawmakers consider to make the next plan work better than the current one.