Jack Dorsey, chief executive officer of Square Inc., second right, tours the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Thursday, Nov. 19, 2015.
Yana Paskova | Bloomberg | Getty Images
Square is letting workers access some of their earned wages ahead of schedule, which could add fuel to the company’s recently booming banking business.
San Francisco-based Square on Tuesday launched “On-Demand Pay,” which lets those using Square for payroll give employees up to $200 of a paycheck ahead of the normal biweekly schedule. Those funds can be funneled directly into Square’s popular mobile account, the Cash App.
Square, run by Twitter CEO Jack Dorsey, also announced an “instant payments” feature, which lets businesses fund payroll immediately using money in their Square balance, instead of waiting to pay through external bank accounts.
Square’s general manager of Payroll, Caroline Hollis, pointed to the decline in cash tips at restaurants as one reason for the product launches. As cash becomes seen as a potential germ-spreader, “a lot of money movement is now happening digitally.”
“We’re solving for cash flow,” Hollis told CNBC in a phone interview. “If you work at a restaurant, cash tips used to be one of the biggest portion of your wages, and that has really dropped off.”
Both products incentivize users to sign up for direct deposit through Square’s Cash App. Those who opt to get paid via Square’s mobile accounts can get their funds within minutes, while linking an external bank account could take a matter of days and incurs a small fee.
“It’s much easier to use Cash App versus having to go and look up your account and routing number information,” Hollis said. “You get paid sooner if you pay out via Cash App — we’re able to do that because we own both sides of the transaction.”
Square’s seller ecosystem has taken a hit during the pandemic as small businesses were forced to shut their doors. But its Cash App — which offers direct deposits — has taken off in the other direction. Analysts point to optimism around the Cash App as the key reason for Square’s 130% stock rally this year.
Square’s peer-to-peer app was originally seen as a competitor to PayPal’s Venmo. It also offers direct deposits, a debit card for spending, and unlike PayPal offers equity and cryptocurrency trading. Cash App saw “meaningful uplift” from users depositing government stimulus checks, CFO Amrita Ahuja said on a call with reporters after its last earnings release. Unemployment checks and tax refunds were also “tailwinds” that drove momentum in the app.
“Until the Coronavirus crisis, Cash App really hadn’t been on the radar for many investors when they thought about Square,” said Max Friedrich, analyst at ARK invest. “That changed through the crisis — Square’s main business stopped and all eyes focused on the Cash App.”
The Cash App was the star of Square’s last quarter, with gross profit for the app rising 167% year-over-year to $281 million. Stored funds, or the amount of money customers keep on the app, jumped 86% from the prior quarter. The app had 30 million users as of June, up from 24 million at the end of last year, according to the company.
Lisa Ellis, fintech analyst and partner at MoffettNathanson, said Square’s value as a two-sided network — owning both the seller side and the consumer side with Cash App — is a “game changer.”
“That is the Holy Grail of payments,” Ellis said. “If you can build a two-sided network then you get a very deep competitive moat. Investors are excited about Cash App for that reason.”
While such a move would increase workers’ take-home pay now, there’s a catch. And employees who understand that may not be so eager for the bigger paychecks.
But the catch is you’d have to pay those deferred taxes back between January 1 and May 1 of next year, said Mark Luscombe, principal analyst for tax publisher Wolters Kluwer. So that same $50,000 earner would have to pay not only her regular Social Security taxes on her earnings for the first four months of 2021, she’d also have to pay the extra $119 per paycheck that her employer deferred this year.
Employers don’t want to leave workers on the hook for that, said Neil Bradley, chief policy officer for the US Chamber of Commerce. “You’re going to have to double their taxes beginning in January. You’re making a decision about people’s ability to make ends meet next year.”
What’s more, employers would be responsible for paying the deferred taxes back if the employee doesn’t. That will be an issue if an employee or seasonal worker leaves a company by early next year. Employers either will have to scramble to withhold much of that person’s last paycheck or foot the bill themselves. And irony alert: If a company does foot the bill, that could be considered taxable compensation to the ex-employee and subject to both income and payroll taxes, Luscombe said.
Should an employer want to implement the deferral, it will take a few weeks to adjust their payroll systems. Employers that administer their own systems have a lot of work ahead of them. Those that use big payroll providers, like ADP, won’t have to do the technical heavy lifting, but they will need to clearly communicate what’s happening to their employees.
Companies are not required to give employees a choice in the matter.
“It’s a business decision,” said Pete Isberg, ADP’s vice president of government affairs. But ADP is changing its systems so clients may choose to give workers the chance to elect deferral if they wish.
It’s still too early to tell how many private sector employers will choose to implement the payroll tax deferral. But based on feedback they’ve gotten so far, both Bradley and Isberg don’t expect many will. “The best feedback we’re getting is ‘We’re still looking at it,'” Bradley said.
And based on what ADP has heard anecdotally, Isberg said, “Most employers are leaning toward not adopting this program.”
Payroll taxes in the US are taxes taken out of an employee’s salary by their employer to be sent to the government. These taxes – typically paid by both the employer and the employee – are used to fund Social Security and Medicare.
It differs from income tax, which is more complex and is based on income not just limited to work.
Mr Trump said: “After I hopefully get elected, we’ll be terminating the payroll tax. So that will mean anywhere from $5,000 or even more per family.”
He later told reporters: “We’ll be paying into social security through the general fund, and it works out very nicely.
“If Biden would win, he wouldn’t do that because he’s going to double and triple everybody’s taxes.”
He also said he would be “deferring payments on student loans at zero interest until further notice.”
It comes just days after the president announced that current payroll taxes would be deferred.
This applies to Americans earning less than $100,000 a year – roughly $8,000 a month, according to Investopedia.
However, these taxes will still have to be paid next year.
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In lieu of the funding brought in from payroll taxes, Mr Trump claimed money for Social Security and Medicare would come from general government income.
In the US, Social Security is known for providing retirement benefits to old-aged pensioners.
However, it also provides disability income and survivor benefits.
Medicare, meanwhile, is a government health insurance programme for people in the US aged 65 or older, as well as some younger people with disabilities or medical conditions.
Despite the president insisting social security would not be affected by the payroll tax cuts, analysts have said the cuts carry political risks.
Joe Biden tweeted his opposition to the cuts, saying: “Donald Trump has said that if he’s re-elected, he’ll defund social security. We can’t let that happen.”
The president’s move has also given rise to discussions about whether he would be able to circumvent Congress to enact the policies in the first place.
He obtained a line of credit from several Capital Region banks, which had grown to $42 million by 2019. He had created companies that generated fake invoices that disguised the source of funds and artificially inflated his assets. He claimed these fraudulent companies did consulting work for Optum and UHG and other well-known companies, including 3M, Best Buy and T-Mobile.
He also misappropriated payroll monies by diverting them to personal accounts he controlled at Pioneer Bank. Those accounts were frozen on Aug. 30 and caused thousands of people not to receive their payroll payment.
U.S. Attorney Grant Jaquith said Mann’s fraud was “staggering.”
“He caused more than $100 million in losses and wove a web of deception so complex that it eventually ensnared hundreds of small businesses and several thousand workers across the country,” he said in a news release. “Today’s plea is the start of holding him accountable for the terrible harm he inflicted on these victims, as well as the banks and other companies that trusted him with their money and believed his sophisticated lies.”
Mann is scheduled to be sentenced on Dec. 10 by Senior U.S District Judge Lawrence E. Kahn.
Mann pleaded guilty to a multicount indictment that included aggravated identity theft conviction, filing a false tax return and wire fraud conspiracy.
Payroll tax cuts have had mixed results in the past, and some economists argue that it’s not the best way to boost the economy right now.
A payroll tax cut would reduce the amount taken out of workers’ paychecks to fund federal programs including Social Security and Medicare.
Congress would have to decide how much to reduce the rate and how long the tax holiday would last.
Currently, workers pay about 7.65% of their wage and salary incomes. Employers match the amount while those who are self-employed pay both shares, though they get to deduct the employer portion.
A temporary payroll tax cut was implemented in 2011 in the aftermath of the financial crisis. It reduced the employee-side tax by 2 percentage points.
A cut to the employer-paid tax would give companies a little more liquidity and may help those struggling to pay rent and other bills.
But it won’t immediately help companies that have laid off employees or remain shut down. Some might not be back in business until the virus is under control and states can fully reopen.
An emergency loan program created by Congress made money available for small businesses hurt by the pandemic. The loans are forgivable if the business used the money to keep employees on the payroll — but they were meant to cover only two months’ worth of costs.
The payroll tax cut implemented in 2011 reduced federal tax revenue by $112 billion in its first year. It was then extended through 2012, costing an additional $115 billion, according to the Congressional Research Service.
Congress would likely replenish the Social Security and Medicare funds with general revenues, like it did in the past.
But Senate Finance Chairman Chuck Grassley, a Republican from Iowa, warned this week that a payroll tax cut would create a “public relations problem.”
“People would think that we’re hurting Social Security funds when we’re really not,” Grassley said.
A handful of Republicans brought up concerns about a payroll tax cut at a party lunch Tuesday with Treasury Secretary Steven Mnuchin and Trump’s chief of staff, Mark Meadows, according to a person in the room.
“Maybe three people raised it and they were all saying the same thing: Maybe this isn’t necessary,” the person said.
CNN’s Lauren Fox and Manu Raju contributed to this report.
Senate Finance Chairman Chuck Grassley, a Republican from Iowa, pushed back on the idea of including a payroll tax cut in the emerging GOP recovery plan, saying on Monday that it’s a “public relations problem” and would have little economic impact.
Republican Sen. John Cornyn of Texas warned that a payroll tax cut “divides our conference,” while Senate Majority Leader Mitch McConnell would not say whether Republicans will accept a payroll tax cut as he walked off the Senate floor Monday afternoon.
Lawmakers have a major feat to pull off as they attempt to put together a new stimulus proposal that can make it across the finish line in a deeply divided Congress and in the midst of an election year.
Democrats and Republicans are already at odds over competing priorities they want to see the bill focus on with no clear way to reconcile major differences.
The pushback from top Republicans to the idea of including a payroll tax cut in the legislation, which Trump has been championing, underscores the extent of divisions that will have to be overcome to pass any legislation, not just between Democrats and Republicans, but within the Republican Party as well. The President has recently said that he would consider not signing the stimulus package if the payroll tax is not included in the package.
Asked about the possibility of a payroll tax cut, Cornyn told CNN on Monday, “I think it divides our conference because the Social Security and Medicare trust funds are not exactly on solid ground.”
“We need to do something in that space anyway, but cutting the revenues by payroll tax is problematic because eventually you’re going to have to raise it anyway and you’re just exacerbating the already difficult status that both of those trust funds are in,” he said.
Grassley also warned about how the public may perceive such a cut, since enacting such a tax break would have an impact on the Social Security trust fund. Grassley said that even though Congress would replenish the fund, people would think Washington is “raiding it.”
“People would think that we’re hurting Social Security funds when we’re really not,” Grassley said, explaining why he thinks it could be a “public relations problem.”
At the White House on Monday, Trump reiterated his support for a payroll tax cut during a meeting with Republican leaders.
“It’s been proven to be successful,” Trump said. “It’s a big savings to the people. It’s a tremendous saving.”
McConnell said he plans to follow the White House meeting with a discussion among members at Tuesday’s GOP lunch to “see if we can develop kind of a common approach to this on our side,” after which he’ll begin to reach out to the Democrats, he said.
Some Senate Republicans have already balked at the enormous price tags associated with the already-enacted stimulus measures, which total in the trillions of dollars, and are reluctant to spend significant amounts of additional money. A payroll tax cut could end up increasing the deficit, a feature of the policy proposal that could make it less likely to win GOP support.
Grassley argued on Monday that a better way to stimulate the economy is through another round of stimulus checks — rather than passing a law to impose a small cut in American workers’ payroll taxes.
“If the purpose of (a payroll tax cut) or a check is to stimulate the economy and help people in need, I think when a person has a check in his hand … I think that’s going to do more economic good than if we dribble out $30 every paycheck,” Grassley said in the Capitol. “Because people are going to notice it and maybe take some action as a result.”
Asked if he’s open to both stimulus checks and a payroll tax break, Grassley said: “I don’t think you can fit them in the approximate (price tag) … Let’s say approximately $1 trillion: I don’t think you can fit them both in.”
CNN’s Ali Zaslav and Jason Hoffman contributed to this report.
A United Airlines flight crew walks through the terminal at San Francisco International Airport on April 12, 2020 in San Francisco, California.
Justin Sullivan | Getty Images
Unions representing tens of thousands of airline employees on Thursday asked lawmakers for $32 billion in additional government aid to maintain their jobs through the end of March 2021, as air travel demand remains low because of the coronavirus pandemic.
U.S. passenger and cargo airlines, as well as airline contractors, had $32 billion in federal aid to keep paying workers under the $2 trillion CARES Act, which Congress passed in March. Terms of that aid prohibit the airlines from laying off or cutting the pay rates of employees through Sept. 30 of this year.
The unions on Thursday urged House and Senate leadership to pass “a clean extension” of that program, arguing that doing so would minimize additional applications or negotiations between the Treasury and airlines.
“This is the simplest and fastest way to maintain Congress’ historic commitment to keep aviation workers on payroll— many of whom are on the front lines of this deadly virus,” said a letter signed by unions representing flight attendants, pilots, mechanics and other employees, to congressional leaders.
Spokespeople for House Speaker Nancy Pelosi and Senate majority leader Mitch McConnell did not immediately respond to a request for comment.
All major U.S. passenger airlines accepted federal support, but executives have warned job cuts are possible once the terms expire this fall. A spokesperson for Airlines for America, which represents American Airlines, Delta Air Lines, United Airlines, Southwest and other major carriers said it “is not currently seeking additional federal assistance.”
Airlines are posting their first losses in years as the vir