Work Share Programs
As a result of the COVID-19 economic downturn businesses everywhere are seeing a decline and as a result a lack of work for employees. Many employers have already had to make the difficult decision to lay off or furlough a large part of their workforce.
However, we have persevered, and are beginning to plan our re-opening. Pennsylvania has already implemented a color-coded re-opening plan (read more here *Hyperlink to blog*). Individual employers will need to decide how they want to bring their workforce back. Most are planning either for a staggering return, or an immediate full return. However, there may be a third option.
Workshare programs (also known as short-term compensation programs) allow employees to earn both wages and unemployment benefits (which will include the $600 weekly federal CARES Act payout). Historically this program had been used instead of furloughs and layoffs, but we are already on the other side of those decisions. Now, it may be used as a stepping-stone in getting employees back into the workplace, with government support to ease the transition.
Traditionally an employee will be eligible to receive wages, plus the percentage of their weekly unemployment benefit equal to the percentage by which their normal hours are reduced. For example, if an employee’s hours are reduced by 25%: They would receive their reduced salary (75% of the workweek), and 25% of their unemployment benefits. Specifics on the plan will vary by state, and it is currently not available in Delaware or Pennsylvania. Find a full list of states and rules here
(reduced wages) + [(percentage by which hours are reduced) x (weekly UI benefit)] + ($600 CARES payment) = weekly employee compensation within work share
Most states currently allow employees to collect partial unemployment benefits when facing reduced hours, but, there is usually a cap on earnings. A workshare program eliminates this cap. Other benefits of a workshare program include: Increasing employee morale and public relations, allowing employees to recoup lost wages, enabling businesses to act conservatively with their payroll, and avoid the cost of recruiting, hiring, and training new employees. Those who oppose the program will point out that it can have high administrative costs, and that under most states the employer would still be required to pay health and retirement benefits.
A workshare program will interact with two federal programs: Employee Retention Tax Credit (ERC), and the Payroll Protection Program loan (PPP). the ERC provides tax credit against employment taxes, to companies in full or partial suspension due to COVID-10. The credit of 50% of up to $10,000 in qualified wages per employee. Employers with 100 or fewer employees can still claim ERC if using a workshare program, as they can claim the ERC as to all qualified wages paid to employees. Larger employees would likely not be eligible. The PPP loan program (read more here *link to PPP Blog), has strict provisions on how to make the loan forgivable, including that 75% of the loan must be used forpayroll costs. Therefore an employer who has received a PPP loan will need to balance the savings in payroll achieved through workshare with the specifics of their loan in order to qualify for loan forgiveness.
A final consideration for a workshare program is exempt employees. As exempt employees are traditionally paid on a salary basis, they do not track their work hours. Yet a key qualifier for workshare is showing that hours have been reduced. Employers need to be very aware of the risks of reducing an exempt employee’s work time if the reductions are made in concert with a reduction in salary. They may not reduce an exempt salary for reduced quantity of work performed due to lack of work. Employers may consider converting exempt employees to hourly, non-exempt roles, but this can cause its own issues. Temporarily reducing salary rates and work expectations and dramatic changes back and forth between salaried and overtime risk loss of overtime pay. When classed as hourly these employees will need to take on new tasks outside of their normal role including timekeeping, as well as new work for administration including overtime pay calculations (including on bonuses and incentive pay, as well as meal and rest breaks. Finally, once that employee is returned to full time the employer may want to keep them as hourly to avoid claims of loss of salary during the workshare program that shows they are not paid on a bona fide salary basis.
