By Emily Haigh, Christine Hogan and Amberly Morgan on
April 27, 2020
In response to COVID-19 and the current economic downturn, employers across the country have experienced a dramatic decline in business and a lack of work for their employees. As a result, many employers had no choice but to lay off or furlough a significant portion of their workforce.
As the country prepares to reopen in the coming months, employers now have to determine how to bring back their workforce. Some may choose a staggered approach; others may reopen stores and bring back their entire workforce at once. This insight proposes a third possible option: a work share program (also known in some states as a short-term compensation program).
Through workshare programs, employees are able to earn wages and unemployment benefits (including the $600 weekly federal payout through the CARES Act). Employers traditionally used these programs to reduce hours in lieu of a layoff. In today’s world, however, layoffs and furloughs have already happened. This Insight discusses using a workshare program as a stepping-stone to getting employees back to work, but with the support of the government-provided unemployment insurance benefits to soften the economic transition.
What are the positives and negatives of a work share program?
Although most states allow employees to collect partial unemployment benefits when an employer reduces hours, the employee has potential to earn more through a work share program. For example, in the state of New York, an employee is ineligible for unemployment benefits if they earn more than $504 per week in wages or work four or more days per week. Within a work share program, however, there is no earning cap and the employee can continue to work a greater number of hours. Other pros and cons are listed below.
- Increasing employee morale and good public relations by minimizing or eliminating the need for continued layoffs and/or furloughs;
- Allowing employees to recoup lost wages that would have occurred had they simply been scheduled as part-time;
- Enabling the business to act conservatively with their payroll costs when business conditions improve; and
- Avoiding the costs of recruiting, hiring, and training new employees.
- Administrative costs related to enacting a workshare program (including drafting a program for state DOL approval and providing regular certifications regarding workers’ participation in the program);
- Many states with workshare programs require the employer to provide access to health and retirement benefits. Accordingly, the only cost-savings will likely be related to wages.
How much can an employee earn on workshare?
As part of a work share program, an employee is eligible to receive wages plus the percentage of their weekly unemployment benefit equal to the percentage by which their normal hours are reduced. In other words, if an employer reduces the normal hours of its sales department by 30%, then the sales department will receive their wages for hours worked (70% of the workweek), and 30% of their weekly unemployment benefit. Employees are also eligible to receive $600 per week (until July 31, 2020), through federal pandemic unemployment compensation. Below is the calculation of earnings on workshare.
(reduced wages) + [(percentage by which hours are reduced) x (weekly UI benefit)] + ($600 CARES payment) = weekly employee compensation within work share
Which states have work share programs?
Only certain states have workshare programs,1 and each state program is slightly different. The below chart identifies which states have work share programs, the percentage by which the employer must reduce hours, the max unemployment benefit in each state, and links to where an employer can apply in order to initiate a work share program.
|State||% of hours reduced allowable under the program||Max UI weekly benefit||Link to state information and/or application|
|Arkansas||At least 10%||$451||here|
|District of Columbia||10-40%||$440||here|
Can exempt employees participate in a work share program?
In order to determine whether exempt workers can participate in a work share program, employers should first review the specific rules for the state program, and next, consider what might be necessary to demonstrate that the employee does in fact have a reduced workload.
Most exempt employees are paid on a salary basis (a requirement for the most common exemptions), and do not track their hours of work. To qualify for a work share program, employers might need to certify that they have reduced employee hours to a specific number to qualify.
Employers should be particularly cognizant of the risks associated with reducing exempt employees’ working time if such reductions are made in concert with reductions to salary. An employer may not dock an exempt salary for reductions in the quantity of work performed in a workweek due to lack of work, unless the employee performs no work in the week. It is possible, within limits, to impose an advance reduction in the weekly salary rate in connection with a reduced work expectation during a downturn, but many limits apply. Consultation with counsel is advised.
Employers may consider converting exempt employees to hourly, non-exempt employees in order to better position the employees to qualify for a work share program. In doing so, employers should be aware that, as when temporarily reducing salary rates and work expectations, moving employees back and forth between salaried exempt and hourly nonexempt status could risk loss of the overtime exemption during periods the employee is paid on a salary basis. Also, during the time the employees are reclassified as hourly nonexempt they will be subject to all resulting obligations towards those newly reclassified employees, including time keeping, minimum-wage compliance, overtime payments calculated on all wages (including bonuses and other incentive pay), and meal and rest breaks where required. In addition, when the employer is later able to return the workers to full-time, they may want to consider leaving the employees as hourly non-exempt, to avoid the claim that their loss of salary during the work share program shows that they are not paid on a bona fide salary basis.
How does a work share program interact with federal stimulus benefits for employers?
Two federal stimulus benefits are important to consider when entering into a work share program: Employee Retention Tax Credit (ERC) and the Payroll Protection Program loan (PPP).
The ERC provides a tax credit against employment taxes for employers experiencing a financial hardship due to COVID-19, in the form of a full or partial suspension of business operations due to a governmental order or a significant decline in gross receipts. The credit is 50% of up to $10,000 in qualified wages per employee. Employers with 100 or fewer employees can claim the ERC as to all qualified wages paid to employees. Therefore, smaller employers are able to take advantage of both the ERC and a work share program. Employers with more than 100 employees, on the other hand, are only able to claim the tax credit based upon qualified wages paid to an employee who is not providing services. Therefore, an employer with more than 100 employees participating in a work share program will likely not be eligible for the ERC.
The PPP is a program that expands loans available under section 7(a) of the Small Business Act. Under this program, certain small businesses can obtain a fully forgivable loan of up to 250% of monthly payroll costs based on maintaining employee headcount and wage levels. However, the loan is only forgivable if certain conditions are met, one of which is that at least 75% of the loan proceeds must be used for payroll costs. Therefore, an employer who has received a PPP loan will need to balance the savings in payroll costs achieved through participation in a work share program against the obligation to meet this threshold condition to obtain any amount of loan forgiveness.
Employers across the country should evaluate (1) if a work share program is present in their state(s) of operation; (2) whether a work share program makes financial sense for their company compared to other cost-saving solutions; and (3) calculate the potential work share earnings of their workforce and the impact those earnings would have on employee morale. Employers may also want to assess the work share landscape early in order to benefit from the $600 weekly federal pandemic unemployment compensation before it sunsets on July 31, 2020.
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This article only includes general information and IMS is not, by means of this article, rendering any tax, legal or other professional services. This communication should not be relied upon for any decision or action that may have an impact on your business. Prior to taking any action, you should be in contact with your advisor.