Employers are making difficult choices during the coronavirus pandemic, such as deciding whether to layoff or furlough workers as the economy declines. Even as businesses reopen, many are doing so at reduced capacity. As an alternative to job cuts, employers should consider participating in work-share programs run by the state.
In work-share arrangements, the employer cuts a worker's hours and wages, and the unemployment system provides supplemental pay, noted William E. Spriggs, Ph.D., chief economist for the AFL-CIO in Washington, D.C.
"Work-share programs are considered to be part of the unemployment system," said Ronnie Miller, an attorney with Barnes & Thornburg in Washington, D.C. "Traditional unemployment kicks in when you become unemployed through no fault of your own," he explained. "Work share kicks in when you still have some attachment to employment."
Most states have relaxed their job-search requirement for work share participants, since those workers are still "job attached," Miller explained.
Christine L. Hogan, an attorney with Littler in New York City, said, "Employers traditionally used these programs to reduce hours in lieu of a layoff. In today's world, however, layoffs and furloughs have already happened."
The U.S. Department of Labor (DOL) said in
an opinion letter that work-share programs can serve as a "means of bringing most or all of a temporarily laid-off workforce back to the job, even if social-distancing measures, a decline in business or other factors prevent operating at full staffing levels full time."
State Rules Vary
Work-share arrangements—which are also called short-time compensation programs—are administered by the state agency that manages unemployment benefits. At least 26 states and Washington, D.C.,
have operational programs, according to the DOL.
Virginia lawmakers recently decided to
re-establish the state's program, which will take effect Jan. 1, 2021.
"Employers should review carefully applicable state-specific requirements—in the states in which the employees work—before signing on to a program," said Keerthi Sugumaran, an attorney with Jackson Lewis in Boston. "Because of state-specific requirements, there is no one-size-fits-all solution, and employers should prepare for the administrative burdens of creating a plan and completing the application process."
An employer will generally submit a work-share plan to the applicable state agency for approval, then the employer can follow an approved plan to temporarily reduce wages and hours, and workers can begin collecting partial unemployment benefits.
Sugumaran provided the following example of how the program may be used: Instead of laying off 20 percent of its workforce, a participating employer may reduce all hours and payroll costs across its entire workforce or across a segment of its workforce by 20 percent. The affected employees would receive 80 percent of their regular pay from the work-share employer. They also would be eligible to collect partial unemployment-insurance benefits from the state to offset the reduction, at least in part.
Coordinating with Temporary Federal Benefits
Employees participating in work-share programs can still receive
the $600 federal weekly unemployment benefit that was temporarily authorized through the Coronavirus Aid, Relief and Economic Security (CARES) Act until July 31.
Hogan, of Littler, noted that work-share benefits are usually charged against an employer's unemployment-insurance account, but for claims filed between March 30 and Dec. 27, shared work benefits will be federally funded, and states can choose not to charge the employer's account.
During the pandemic, states without a work-share program have been authorized by the federal government to operate a temporary program and receive reimbursement for half of the benefits cost, according to the DOL.
Employers that receive loans through the federal Paycheck Protection Program (PPP) should note that the loans are forgivable only
if certain conditions are met, including spending at least 75 percent of the funds on 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," Hogan said.
The Pros and Cons
Hogan suggested that employers evaluate whether a work-share program makes financial sense for the company compared to other cost-saving solutions, and they should calculate the potential work-share earnings of their workforce and the impact those earnings would have on employee morale. She noted the following pros and cons of taking advantage of work-share programs:
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Pros |
Cons |
- Increasing employee morale and good public relations by minimizing or eliminating the need for continued layoffs or furloughs.
- Allowing employees to recoup wages that would have been lost had they simply been scheduled as part time.
- Enabling businesses to act conservatively with their payroll costs when business conditions improve
- Avoiding the costs of recruiting, hiring and training new employees.
| - Incurring administrative costs related to enacting a work-share program, such as drafting a program for the state agency to approve and providing regular certifications regarding workers' participation in the program.
- Realizing limited cost savings, since many states with work-share programs require the employers to provide access to health and retirement benefits.
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Source: Littler Mendelson.
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Employers must use caution when reducing pay for workers who are paid a salary and exempt from overtime pay. Exempt employees are not paid based on hours worked and generally do not track their hours.
"Employers may consider converting exempt employees to hourly, nonexempt employees in order to better position the employees to qualify for a work-share program," Hogan said. "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."
Furthermore, employees who are converted to nonexempt status will have to track their hours, and employers must be sure to comply with minimum-wage and overtime laws. In certain states, such as California, they must also provide nonexempt workers with meal and rest breaks.
Nancy Cleeland, SHRM's employee relations editor, contributed to this article.