As it extends aid to people put out of work by the COVID-19 pandemic, the federal government could be doing more to help one group of employers and the vital American workers they employ: Hundreds of thousands of nannies, housekeepers and others employed in private homes.
Starting April 3, millions of small businesses became eligible to apply for forgivable loans from the Small Business Administration (SBA) under the Paycheck Protection Program (PPP), which aims to reduce the number of employees who are laid off from small businesses that cannot meet their payrolls. These loans provide up to two months of salary support and assistance with mortgage, rent and utilities to help businesses retain and pay their employees.
But the SBA’s interim final rule excludes household employers. In 2019, there were about 250,000 private households in the U.S. registered as employers, with about 280,000 employees covered by state unemployment insurance programs. These are the household employers who are following the IRS’ tax regulations, treating their workers as household employees and covering payroll taxes so that their employees are eligible for unemployment insurance and other
benefits. The SBA rule indicates that these employers do not meet the definition of a business under PPP — although, under the Families First Coronavirus Response Act they are required to provide additional paid sick time off and family and medical leave to their employees.
This exclusion creates two potential challenges. First, many household employers may lay off their employees — either because they no longer need their services, or because they are concerned about the risk of virus transmission. And while these employees would likely qualify for expanded unemployment insurance under the CARES Act, this would increase the burden on state unemployment systems, which have been unable to handle the 16 million new claims during the past three weeks. Other employers may continue to pay their employees not to come to work. But it is not clear for how long this is sustainable, especially if employers themselves face added financial burdens from layoffs or reductions in hours.
Second, some employees – particularly child care workers and health workers, who have been deemed essential in many states – may feel the need to continue to work to make ends meet, potentially increasing the risk of virus transmission.
To address these challenges, policymakers should consider whether to make direct payments to household employers who keep paying their employees, regardless of whether those employees continue to work. This could reduce the number of workers who join the unemployment rolls or who feel compelled to work. And such a measure would also demonstrate support for those household employers who have been following the rules and encourage more to do so in future.
Of course, there are also many household employers who are not following the rules, and therefore many employees who would not have access to additional sick or medical leave, unemployment insurance or the CARES Act’s cash payments to households. The exact number of household workers who are not registered as employees is difficult to estimate, but the Bureau of Labor Statistics’ household survey reported that there were about 800,000 people employed in private households in the U.S. in 2019; the National Domestic Workers Alliance puts the number at more than 2 million. For these workers, it may be worth considering targeted assistance. For example, some states like California and the District of Columbia are considering extending unemployment benefits to undocumented and other non-traditional workers. Even beyond the humanitarian goal of helping these workers, there is a “public good” argument, in terms of decreasing the spread of COVID-19, to be made for supporting these groups in addition to those who follow the rules.
Helping household employers who have been following the rules – and ensuring that household employees whose employers have not been doing so don’t fall through the cracks – could be important for reducing the numbers of the unemployed, slowing virus transmission and creating additional incentives for household employers to pay their workers formally in the future.
Shanthi Nataraj is director of the Labor and Workforce Development Program and a senior economist at the nonprofit, nonpartisan RAND Corporation, and a professor at the Pardee RAND Graduate School. Krishna B. Kumar is director of international research and a senior economist at RAND. He is also director of the Initiative for Global Human Progress at the Pardee RAND Graduate School.