FAQs for Employers Who Reduce Employee Hours in Response to COVID-19
Many employers who are experiencing a downturn in business due to COVID-19 need to make difficult financial decisions, including whether to temporarily lay off employees. For example, if a business with 100 employees faces a temporary setback due to COVID-19 and must reduce its payroll by 20 percent, the employer may feel like it has to lay off 20 employees. As an alternative to lay-offs, employers may want to consider reducing employee hours. For example, the employer could reduce the work week of all employees from five days to four days per week (a 20% reduction). Reducing hours instead of laying off employees creates a win-win situation for both employers and employees – employers can keep a trained work force intact during a temporary setback, and employees can maintain their job, thereby enabling a faster return to full-time work when normal business operations resume.
What options do employers have when reducing employee hours?
One option for California employers who decide to temporarily reduce employee hours during a COVID-19 caused slow-down in business, is simply to reduce employees’ hours and take no further action. The employees would then be eligible to file a claim with California’s Employment Development Department’s (EDD) for Unemployment Insurance (UI) benefits. UI provides partial wage replacement benefit payments to workers who lose their job or have their hours reduced, through no fault of their own. Workers are considered “unemployed” and are eligible for UI benefits for any week in which they have less than full-time work, if the wages payable to them by their employer for the week, when reduced by $25 or 25%, whichever is greater, do not equal or exceed their weekly UI benefit amount[i]. Pursuant to an Executive Order issued by Governor Gavin Newsom, the standard one-week waiting period for UI benefits has been waived for individuals who lose their jobs or whose hours are reduced as a result of COVID-19. In addition, the EDD is not requiring workers to actively seek work in order to qualify for UI benefits, provided they remain ready, able and available to work during each week they seek UI benefits.
Alternatively, an employer who reduces employee hours can elect to participate in the EDD’s Work Sharing Program. To be eligible, the plan to reduce hours and wages must involve the participation of at least two employees and include not less than 10% of the employer’s regular permanent work force involved in the affected work unit or units in each week, or in at least one week of a two-consecutive-week period.[ii] The reduction in hours and wages must be at least 10%, and cannot exceed 60%. To participate, employers must file a Work Sharing Plan application with the EDD and have the Plan approved. Thereafter, they must file a weekly or bi-weekly Employer’s Work Sharing Certification form for each eligible employee participating in the Plan that includes the weekly hours of the employee. Each eligible employee must also file weekly or bi-weekly Claimant’s Work Sharing Certification form. With the exception of very low wage earners, employees will generally receive slightly higher wage replacement benefits under a Work Sharing Plan than if they simply file for partial UI benefits. Thus, even though a Work Sharing Plan requires more work by the employer, this option may be preferable for employers who are looking to do all they can to help their employees during the pandemic.
How much money will employees receive in wage replacement benefits under a Work Sharing Plan compared to filing a standard partial UI claim?
Eligible employees, as discussed below, who participate in a Work Sharing Plan will receive benefits each week proportionate to the percentage of the reduction in their normal hours and wages. If the percentage of wage reduction differs from the percentage of hour reduction, the amount payable is based on the lesser percentage. For example, if the employee would be entitled to the maximum $450 UI benefit if fully unemployed, and the employee’s hours were cut by 20%, the employee would be eligible for a weekly UI check of $90 (20% of $450). Any additional wages earned during the week in the employment of an employer(s) other than the Work Sharing employer will be deducted dollar-for-dollar from the Work Sharing benefits.
Employees who do not participate in a Work Sharing Plan and who receive standard partial UI benefits as a result of a reduction in hours will receive benefits equal to their weekly benefit amount, less the smaller of the following: (1) the amount of wages in excess of $25 payable to them by their employer for the week, or (2) the amount of wages in excess of 25% of the wages payable to them by their employer for the week. This means that the first $25 or 25% (whichever is greater) of the wages allocated to a week will be disregarded. The amount remaining (i.e., earnings over $25 or 75% of the earnings, whichever is smaller) is deducted from the employee’s weekly benefit amount.
1. An employee who regularly earns $1,000 per week had a 50% reduction in hours, earned $500 in the week, and is entitled to the maximum $450 weekly benefit amount.
Work Sharing Plan – Employee is entitled 50% of the $450 weekly benefit amount = $225.
Standard Partial Unemployment – Employee’s weekly benefit amount ($450) is reduced by the smaller of: (i) the employee’s weekly wages over $25 ($500 – $25 = $475), or (ii) 75% of the employee’s weekly wages ($500 x 75% = $375), so the employee is entitled to $75 ($450 – $375).
2. An employee had a 20% reduction in hours, earned $500 in the week, and is entitled to the maximum $313 weekly benefit amount.
Work Sharing Plan – Employee is entitled 20% of the $313 weekly benefit amount = $63.
Standard Partial Unemployment – Employee’s weekly benefit amount ($313) is reduced by the smaller of: (i) the employee’s weekly wages over $25 ($500 – $25 = $475), or (ii) 75% of the employee’s weekly wages ($500 x 75% = $375), so the employee is entitled to $0 because the deductions are greater than the weekly benefit amount.
3. An employee had a 30% reduction in hours, earned $250 in the week, and is entitled to a $167 weekly benefit amount.
Work Sharing Plan – Employee is entitled 30% of the $167 weekly benefit amount = $50.
Standard Partial Unemployment – Employee’s weekly benefit amount ($167) is reduced by the smaller of: (i) the employee’s weekly wages over $25 ($250 – $25 = $225), or (ii) 75% of the employee’s weekly wages ($250 x 75% = $187.50), so the employee is entitled to $0 because the deductions are greater than the weekly benefit amount.
4. An employee had a 25% reduction in hours, earned $100 in the week, and is entitled to a $68 weekly benefit amount.
Work Sharing Plan – Employee is entitled 25% of the $200 weekly benefit amount = $16.25.
Standard Partial Unemployment – Employee’s weekly benefit amount ($65) is reduced by the smaller of: (i) the employee’s weekly wages over $25 ($100 – $25 = $75), or (ii) 75% of the employee’s weekly wages ($100 x 75% = $75), so the employee is entitled to $0 because the deductions are greater than the weekly benefit amount.
Thus, employees generally earn more under a Work Sharing Plan, and employees who might not be eligible for standard UI benefits because they make too much money to be considered “unemployed,” can often still collect benefits under a Work Sharing plan.
Are employees eligible for the CARES Act $600 supplement if their work hours are reduced?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. [iii] The CARES Act expands states’ ability to provide unemployment insurance for many workers impacted by the COVID-19 pandemic, including for workers who are not ordinarily eligible for unemployment benefits. Under the CARES Act, the California EDD will pay an additional $600 on top of a claimant’s weekly benefit amount, using money from the federal government as part of the federal CARES Act, Pandemic Additional Compensation program. Here’s what you need to know:
- Pandemic Additional Compensation payments will be retroactive to March 29, 2020 (providing a claimant had an active claim that week) and will continue through July 25, 2020[iv], to those claimants who remain impacted and otherwise eligible for benefits.
- Claimants do not need to do anything to receive Pandemic Additional Compensation payments. The EDD will automatically add $600 to each week of claimants’ benefits.
While the EDD has not issued specific guidance, it appears that employees who receive at least $1 in any type of UI benefit payments, which should include payments under a Work Sharing Plan, are eligible for the weekly $600 Pandemic Additional Compensation payments.
May employers reduce hours and wages of exempt employees?
Yes. Non-exempt employees can have their hours reduced at any time without notice. Further, an employer can reduce a non-exempt employee’s rate of pay at any time so long as the new rate is above minimum wage, the employee is given written notice of the change, and the change is made prospectively.
Exempt employees must be paid their regular salary for any week in which they perform work, even if it is only a couple hours of time. However, an employer can reduce an exempt employee’s salary as long as the rate is above the minimum required for the applicable exemption, the employee is given written notice of the change, and the change is made prospectively. If an exempt employee performs no work for a full workweek, they do not need to be paid their salary and they can apply for the wage replacement benefits.
Alternatively, if an employer is experiencing a work slowdown and does not have full-time work for its exempt employees, it can reclassify these exempt employees to non-exempt. As a non-exempt hourly employee, they will be paid for each hour that they work as opposed to their full salary in any week they perform work. If these reclassified employees are earning less than they did when they were an exempt salaried employee, they can apply for wage replacement benefits. Reclassifying employees requires legal notice and compliance with additional related employment laws. Thus, employers considering reclassifying exempt employees should seek legal guidance.
Must employers who choose to reduce employee hours as an alternative to lay-offs maintain health and retirement benefits for their employees?
If an employee’s hours are eliminated or reduced below the minimum required to maintain the employee’s health benefits the employer can terminate the employee’s health benefits. If benefits are terminated, the employer must provide the affected employees with a COBRA notice. Alternatively, the employer may voluntarily maintain the employee’s health benefits so long as the plan provider will allow it.
Employers who participate in a Work Sharing Plan must maintain health and retirement benefits at the same level as prior to the reduction in hours and wages, or to the same extent as employees not participating in the plan, unless the reduction in benefits is applied equally to employees not participating in the Work Sharing program during the duration of the plan.
How is an employers’ EDD reserve account charged for standard partial UI claims filed by their employees and for claims filed by employees under a Work Sharing Plan?
The reserve account is a cumulative record of credits (+) and charges (-) and is the basis for the California experience rating method. It is used to determine the employer’s annual UI contribution rate. New employers are assigned a 3.4 percent UI rate for a period of two to three years. Thereafter, the rate is based on the employer’s actual record for UI claims. Thus, employers generally try to limit UI claims.
For employers participating in a Work Sharing Plan, benefits will be charged to the reserve account of those employers who are in the employee’s base period in the same manner as regular UI benefits.
Charges to a reserve account tend to adversely affect the reserve account balance, thereby increasing the potential for a higher UI tax rate in future years. Direct reimbursable account employers are billed directly for 100% of the Work Sharing UI costs. The EDD mails a Notice of Employer Contribution Rates and Statement of UI Reserve Account, DE 2088, in February of each year. This notice reflects the status of a reserve account as of the prior June 30. Any employer considering the Work Sharing program should review their latest DE 2088 to determine the probable effect on their reserve account. Because benefit payments tend to be higher under a Work Sharing Plan, there is a greater potential for an increase in an employer’s UI tax rate.
What employers are eligible and how do I get a Work Sharing Plan approved?
Approval of the employer’s Work Sharing Plan requires the following:
- The Work Sharing Plan must be submitted for approval to EDD by the employer using the Work Sharing Plan Application, DE 8686, mailed to: EDD Special Claims Office, PO Box 419076, Rancho Cordova, CA 95741-9076.
- If a collective bargaining agreement(s) covering the affected work unit(s) is in effect, the Work Sharing Plan Application must be signed by each appropriate bargaining agent.
- Benefits cannot be paid for any weeks prior to the effective date of the Work Sharing plan.
- The employer’s Work Sharing Plan must involve the participation of at least two employees and at least 10% of the work force or work unit(s).
- There must be at least a 10%, not to exceed 60% reduction in both hours worked and wages earned for each participating employee.
How do employees become eligible to participate in a Work Sharing Plan?
To qualify for benefits under a Work Sharing Plan, the individual does not need to meet the standard definition of “unemployment” under the Unemployment Insurance Code.[v] Instead, participating employees must meet the following under section 1279.5:
To qualify for benefits under a Work Sharing Plan, participating employees must:
- Be regularly employed by a Work Sharing employer, either full or part time. Leased, intermittent, temporary, and seasonal employees are not eligible.
- Complete a normal work week (with no hour or wage reductions) prior to participating in the Work Sharing Plan.
- Be available for and accept all work offered by their Work Sharing employer.
- Have qualifying wages in the base quarters used to establish a regular UI claim.
- The reduction in each participating employee’s hours and wages must be at least 10% and no more than 60%.
Further, the following individuals cannot participate in the Work Sharing Program: Leased, intermittent, seasonal, or temporary service employees, and corporate officers or major stock holders with investment in the company.[vi]
Do employers have ongoing obligations after a Work Sharing Plan is approved?
Yes. After a Work Sharing Plan Application has been approved, a supply of Work Sharing Certification, DE 4581WS forms will be sent to the employer. The employer must complete a Work Sharing Certification form for each week an employee qualifies to participate in the Work Sharing program. Employers are responsible for the completeness and integrity of each Work Sharing Certification form they issue to a participating employee.
A Work Sharing Certification form is considered to be “issued” to the participating employee when it is hand delivered to the employee, mailed to the employee, or made available to the employee at a pick-up point familiar to the employee.
How long can an employer use a Work Sharing Plan and is there flexibility in how it is scheduled?
A Work Sharing plan is approved by the EDD for a 12-month period. If the employer continues to require Work Sharing in order to avoid layoffs, an application may be submitted for a subsequent plan. Such a plan may be approved immediately after a prior plan expires if the application is received timely.
Work Sharing is flexible. Employees may be rotated so different employees have reduced hours and wages each week. The flexibility of a Work Sharing Plan also allows the employer to determine which employees will participate in Work Sharing, which week(s) will have hour and wage reductions.
For more information on employers’ obligations to employees during the COVID-19 pandemic, suggested policies, or other employment issues, please contact your ALBB attorney or any member of our COVID-19 taskforce: Jennifer Branch (email@example.com), Kelly Folger (firstname.lastname@example.org), Melissa A. Lewis (email@example.com), Carrie Battilega Luetzow (firstname.lastname@example.org), Lara P. Besser (email@example.com) and Jessica Yang (firstname.lastname@example.org).
[i] The weekly UI benefit amount is the amount an individual would receive in UI benefits if totally unemployed. This amount is determined by taking the amount of wages the individual earned in their highest base period quarter (see https://www.edd.ca.gov/pdf_pub_ctr/de8714ab.pdf) and comparing it to the EDD’s Unemployment Insurance Benefit Table (see https://www.edd.ca.gov/pdf_pub_ctr/de1101bt5.pdf). See also Unemployment Insurance Code § 1252(a)(2).
[ii] Unemployment Insurance Code § 1279.5(a).
[iv] Under the CARES Act, the $600 Pandemic Additional Compensation payments are available through July 31, 2020, but the U.S. Department of Labor issued guidance to clarify that, for most Californians, the last full week of benefits will end on July 25, 2020. https://edd.ca.gov/about_edd/coronavirus-2019/pandemic-unemployment-assistance.htm; https://www.dol.gov/coronavirus/unemployment-insurance