Workshare as an Alternative to Layoffs

We pulled together a summary regarding the best approach for a Company and its employees relative to the various benefits out there (e.g. Payroll Tax credit, layoffs, furloughs, workshare, Pandemic Unemployment Assistance, etc.). A local HR consultant concurred with the analysis and the conclusion.

As you know, this is NOT DCA’s area of expertise, and we are providing this information in an attempt to provide OUR interpretation of currently available materials. People should NOT make and decisions or take any actions based upon the assessment below, as it is not being issued by a qualified professional. People should seek counsel from their own legal, tax and HR advisors before making important legal or employment decisions.

“If I need to cut payroll by X% during the COVID-19 lockdown, what is the best approach for doing so—for both the employer as well as the employee?”

Employer Lens

• The payroll tax credit (according to large CPA firm) applies only to wages paid to employees for time when they are NOT providing services
• Hence, if you pay them, you incur 100% of the payroll cost for time they are not working up front and then get a 50% credit, which costs the Company a net of 50% of their compensation and you get 0 value
• By contrast, if you furlough them, or workshare them, it costs the Company $0 for the non-productive time (as opposed to 50%)
• So from an employer perspective, workshare appears to be a better solution than taking advantage of the tax credits
• Employee benefits to the employee must remain the same, and employees qualify if their hours/comp are reduced by anywhere between 10-60%
• In order to qualify for workshare in CA , an employer needs to become qualified through EDD
• For details on restrictions, qualification requirements and application procedure, see: https://www.edd.ca.gov/unemployment/Work_Sharing_Program.htm

Employee Lens

• If I am paid $20/hour, and the Company keeps me on at full pay, then I get paid my $800/week
• If the Company puts me on 50% workshare, then I get paid:
  • $400 by the Company (20 hours x $20/hr.)
  • $150 (estimate) in State unemployment
  • $600 from Federal Pandemic Unemployment Assistance
  • Based on recent DOL guidance, it appears that an employee who is eligible for even $1 of state unemployment will qualify for the entire $600/week from the PUA
  • Total = $1150
• Hence, an employee can make an added 40% via this approach (obviously, this % changes based on employee comp level)

CONCLUSION: a workshare plan is the most cost-effective way to deal with a slowdown in work for CA employers, as it:

• Allows the employer to only pay for time that workers are actually productive
• Allows employees to actually make MORE money than when they were working full time
• Allows twice as many employees to capture the $600 federal unemployment benefit than you would get if you lay off half the work force and have the other half work full time
• All employees maintain their benefits during the workshare period
• PLUS: you get the added benefit of maintaining a full working relationship with your entire employee base, allowing you to scale back up more quickly once the COVID-19 situation has passed