I’ve been asking fellow business owners about the business lessons that they are learning during the COVID-19 pandemic. Those that have been through multiple economic downturns overwhelmingly say that business owners must be decisive and cut costs as quickly as possible, including payroll.
With businesses now on the cusp of reopening, employers are bringing back workers at a reduced capacity. Those who chose not to lay off or furlough workers need to make strategic cuts in order to stay afloat. One method of doing this is through a state-administered workshare program.
Under a workshare program, participating employees work reduced hours while collecting a percentage of unemployment insurance benefits.
Workshare programs allow employers to:
§ Retain valuable, trained employees
§ Preserve the employee-employer relationship
§ Cut immediate payroll costs
§ Save some “hidden” mid- and long-term costs (e.g. the cost of recruitment)
§ Avoid “lost opportunity” costs because there were no employees to do the work
Note: Employers must be mindful of how exempt employees are handled under a workshare program, as their status (i.e., exempt vs non-exempt) may be impacted by the wage/salary reductions.
Before applying, employers should consider the holistic impact of implementing a workshare program. Some features may cut into the cost-savings, including:
§ Employee Benefits – Most states, while allowing employers to cut down employee work hours, still require them to carry full benefits for employees in the workshare program. Some states will allow a reduction of benefits only if that impacts all employees, not just the ones participating in a workshare program.
§ Unemployment Insurance (UI) Tax Rates – A work share program can impact the employer’s experience rating and therefore the unemployment insurance payroll tax rate. But since workshare program benefits are being funded by the federal government until the end of 2020, some states have chosen not to “charge” the employer’s unemployment insurance rate.
§ Administrative Burden – Employers should also consider the time and effort needed to manage the program once implemented. Each employee under the program has to certify with the state each week and so does the employer. With varying state guidelines, administrative costs quickly increase for employers that operate in multiple locations and/or multiple states.
§ PPP Loan – If the employer received a PPP loan and your goal is loan forgiveness, you need to make sure you stay within the restrictions imposed regarding employee wage reductions. For example, in New York the workshare program allows employers to reduce employee hours by 20-60%. But if an employer received a PPP loan and wants to maximize forgiveness, they can only reduce employee hours and wages by up to 25%.
All states vary in their eligibility and reporting requirements (e.g., in NJ an employer has to have a minimum of ten employees to be eligible for a workshare program while in NY and CT you need a minimum of two employees in the unit – with “unit” being defined as company, department, shift, job function or any clearly defined group). It is critical that employers review and fully understand applicable state-specific requirements before applying for a workshare program.
Here are five other considerations and things to prepare when putting a workshare plan together for submission to the state.
#1: Work with the financial expert on your team or a virtual CFO, like the Art of Money Matters, to analyze the business’s sales, profits and changes in cash position over the past few months, to determine whether layoffs are needed. If, yes, calculate the total number of people that would be laid off if you do not participate in the workshare program. This calculation will likely be needed for your application and plan submission.
#2: Evaluate the impact of the downturn to different parts of the business, ask:
§ Will all functions or departments be impacted equally by the downturn? If so, will the impact be the same?
§ What does the business need to pull through the downturn?
§ Are there essential or critical functions that need to continue at 100% while others need to be cut back in terms of work hours and corresponding wages?
#3: Determine a projected start and an end date for the workshare program.
#4: Be prepared to certify that the reduction in work hours is in lieu of layoffs and give the reason for the expected duration of the work reduction.
#5: Figure out how to streamline or automate the process by which employers have to submit plan information and certify weekly to minimize administrative burden.
Workforce reductions are an emotional and financial decision. Sometimes you have to cut quick and deep to keep the business stable and other times a more surgical and strategic approach can be taken.
Thank goodness for the workshare program, which is little known despite being around since 1978, and the March 2020 C.A.R.E.S Act which stipulates that through the end of 2020, the federal government (instead of states) will cover the unemployment benefits paid to workers whose employers are implementing state-approved workshare programs.