Please note: here is a summary of the upcoming FFCRA Federal law, taking effect on April 1st and requiring employers with less than 500 employees to provide emergency paid sick leave and paid family leave.
Facing this crisis, you may want to consider the strategies below as alternatives to layoffs or additional action steps. Some of these options can help you retain your employees, especially those that can work from home, avoid recruiting time and costs when business picks up, while showing concern for your team, and thus facilitating a more rapid recovery.
1. Reduction in Hours
The best of class way to manage this (if you can afford it) looks like reducing hours and compensation across the board (including your own). That is an equitable and fair approach. Employees work less and make less. This could be fewer days or also be fewer hours per day – whatever works best for your business model.
Employees may qualify for partial unemployment benefits if their hours and wages are reduced due to lack of work, and you can also sign up for the Work Share Program, outlined below.
2. Pay Cuts
Pay cuts are a reduction to employee wages that may be temporary or permanent. Employees must be given advance notice that their pay will be cut; in other words, no compensation reductions can be done retroactively. Best of class is having everyone – owners and managers as well – take the same cut they are giving to employees. This might look like a 30% cut, with well-communicated revenue goals which will increase people back up to 100% (maybe in 10% increments) and then perhaps even a 5% raise on top of that – if revenue goals are met.
Important: If you are going to reduce pay, either as a standalone or in conjunction with reducing work hours, you must keep your exempt employees above the minimum salary basis or convert them to hourly employees. If you have 25 or less employees, that number is $49,920. If you have 26 or more employees, exempt employees can’t be paid less than $54,080.
3. Reduce Benefits and Perks
If you have open enrollment coming up, ask employees to pay a larger portion of their benefit premiums, stop covering family members, dial back retirement contributions (within plan rules), stop the free lunches, coffee, etc. to cut costs. Cutting back is better than laying off.
4. Offer Vacation Time Use
Employees may want to spend extra time with their families, complete home projects, take that online course they’ve been talking about. Now might be the perfect time for them to use their accrued vacation time or, if they don’t have the time accrued, using unpaid time off.
5. Let Contract and Temporary Employees Go First
You don’t have the same commitment to these workers as to regular employees, so let them go first if possible.
6. Incentivize Employees to Leave (and Ask for Volunteers)
We’ve heard several stories of employees who are working through a lot of fear and want to be at home. Lay them off before you lay off others who want to work so they can collect unemployment while waiting out the virus and feeling safe.
Ask employees to take voluntary layoffs, offer a buyout to end the employment relationship, or offer early retirement to eligible employees.
7. Work Sharing Program Through the EDD
Work Sharing is an employer-driven Unemployment Insurance program that provides partial unemployment benefits to employees whose hours and wages have been reduced through no fault of their own. The Program is paid for by the employer in the same manner as for regular Unemployment Insurance (UI) benefits. For employees who are still working but less than before, the benefit is that the employees can earn slightly more under the program than they would with Regular UI. We at SFMade recommend that if you possibly can continue to employ people at a reduced rate, you do so using this program to avoid laying them off.
At least 2 employees must be using the Work Share Program, and the maximum their hours can be reduced is 60% (down to 2 days/week if they were working 5 days/week.)
The maximum UI benefit is $1,050 per week or $4,200 per month. With Regular UI, if a person who is working reduced hours makes over $600 in a week, they will not qualify for UI benefits. Under the Work Sharing Program, employees can get UI benefits even if their earnings are over $600/week.
Example: Employee makes $1,600/week, $320/day and has a 60% reduction in hours, going down to 2 days/week. Weekly earnings will be $640. Work Share will pay 60% of weekly maximum $450 ($270) plus the extra $600/week due to the CARES act so the employee’s total weekly earnings will be $270+$600+$640=$1,510. Under regular UI, it would be $640 because they would be denied benefits due to making more than $600 for the week. If you are still able to get revenue for your business, please consider retaining at least 2 essential employees for at least 2 days/week.
There is some administrative burden with the Work Sharing Program. Employers must apply for the Work Sharing Program by submitting the Plan Application Form DE8686. The application has to be mailed to the EDD. The set up and approval time is approximately 10 days. All Work Sharing plans are approved for one year. Please let us know if you’d like to see samples of the weekly paperwork that you fill out once you’re accepted into the program. More information can be found here: Work Sharing Program.
8. Payroll Tax Assistance
The EDD has offered employers experiencing a hardship to apply for a 60-day extension to file their state payroll taxes.
9. Unemployment Insurance (UI)
Anyone whose hours or pay is reduced is eligible to file for unemployment. This means full unemployment or partial unemployment – they are all eligible to file. Under the new Stimulus Bill, benefits are extended by 13-weeks with a four-month enhancement of benefits, adding $600 to the weekly maximum of $450.
For people whose hours have been reduced, the maximum someone can earn per week and still receive unemployment benefits comes from a calculation:
- First you have to calculate the person’s weekly benefit amount if they were completely unemployed. You can use this table to find it using the highest amount they earned in a Quarter (3 months) for the past year. Let’s call that amount X.
- Then you take 75% of the amount they’re earning now (after the reduction), and subtract it from X.
- That’s an estimate of how much they they should receive, plus the extra $600/week of pandemic assistance if that amount is more than $0, which will only last till the end of July 2020. Please note this is only an estimate since it is based on certain assumptions about the person’s earnings in the lookback period.
If employees are still working part time, making more than $600 per week, they are unlikely to qualify for benefits unless you file a work sharing application with the EDD (see #7 above).
Important: Have your employees FILE FOR UNEMPLOYMENT ONLINE!! They will not get through on the phone. File claim here: Unemployment Application.
If you are going to reduce pay, either as a standalone or in conjunction with reducing work hours, you must keep your exempt employees above the minimum salary basis or convert them to hourly employees (see #2 above). They can apply for UI for the time they are missing.
You the business owner and your independent contractors are now eligible for Unemployment Insurance under the Pandemic Unemployment Assistance Program (PUA.) California EDD began accepting applications for the new federally funded Pandemic Unemployment Assistance Program (PUA) on 4/28/20.
If you’ve considered all of the above and you’re ready to lay off employees:
Here is what you must give out:
- Pamphlet (free, in various languages): For Your Benefit, California’s Programs for the Unemployed.
- Information on this form: Change in Relationship. We recommend that you add language about your plan to re-employ them when possible.
- For employers with 20 or more employees: HIPP Notice.
- Final Check Details: You must include unused, accrued vacation time or PTO with detail as well as detail on the following:
- Dates included in the paycheck
- Regular hours and overtime
- Any sick leave or vacation that was used during the pay period.
- Federal, state and local income taxes
- Social Security
- State unemployment insurance
- State Disability Insurance (SDI)
- Final Paycheck Timing: SFMade recommends that final checks be given on the last day of work. If there is an update to that suggestion, it will be posted here.
- You can take “usual” deductions like a health insurance premium contribution but you may not deduct any amount representing the unpaid balance of a debt owed by the employee.
COBRA: This is an option for the employees you’ve laid off to continue to buy the same health insurance that you provided. You need to contact your health insurance provider and let them know who is getting laid off, and they will provide the information to your former employee about how to sign up. You can offer to help pay for the cost of COBRA if you’re able.
Sick Accruals: KEEP TRACK OF UNUSED SICK ACCRUALS because people returning to their jobs within a year will get their accrued, unused sick time put back into their accrual banks so it makes sense to just let them use the time now.
Health Insurance: Definitely talk with your broker about the specific details of your plan documents. Generally speaking, people can’t stay on health insurance if they aren’t on payroll which means they are covered through March 31, and then they will need to move to COBRA beginning April 1. We are told that carriers will allow mid-term eligibility reductions so if you want to reduce from 30 hours to 20 hours, that’s a possibility but you will likely have to honor the reduction until open enrollment.
401(k) Hardship Loans: They are a possibility for your employees and should be discussed with employees as well.
1.) Q: I’m the owner of the company, can I apply for unemployment?
A: Yes. California EDD began accepting applications for the new federally funded Pandemic Unemployment Assistance Program (PUA) on 4/28/20.
2.) Q: Legally, how does a furlough differ from a lay-off? Can you still get unemployment?
A: A layoff is a termination of employment due to economic or business needs of a company. A furlough is a temporary cessation of work (e.g., an employee might be furloughed for one week, during which time he receives no pay, but maintains employer sponsored health benefits). The EDD encourages employees to apply for UI benefits if they experience any of the following: (1) employment termination, (2) hours reduced due to quarantine, or (3) subject to quarantine required by medical professional or state or local health officer. The EDD has published a helpful set of FAQs that can be found here: https://edd.ca.gov/about_edd/coronavirus-2019/faqs.htm.
3.) Q: I received a “Notice of Unemployment Insurance Claim Filed” letter. Do I have to respond?
A: No. Although the form is confusing, the purpose is to give you the opportunity to state if you think your employee was NOT laid off due to lack of work. If you agree that s/he was laid off for lack of work, you don’t have to do anything.
Much of this content is adapted from information provided by Nixon Peabody and Next Level Strategies
Don’t forget to consult our main COVID-19 resource page for manufacturers.
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