Updated 4/29/2020 at 10:45am ET
SC&H’s Key Takeaways
- Work-Sharing is a state-by-state program where employers can reduce employee work hours to cut costs and employees can file for partial state unemployment benefits to make up the difference.
- The CARES Act provides an additional $600 per week to employees who receive state unemployment benefits.
- Many states offer work-share programs, each one with different requirements.
- DC, Maryland, and Pennsylvania all have work-sharing programs. Virginia does not have one at present but is rolling one out soon.
The Work-Share program is an expansion of a state’s Unemployment Insurance. Under work-sharing, a business can temporarily reduce the hours of their employees instead of laying them off. In turn, the employees can apply for reduced state unemployment insurance to help make up for the lost wages.
Here is an example of how the work-share program can help your business during this pandemic:
A business impacted by the COVID-19 crisis is experiencing cash-flow problems and needs to layoff 20% of its workforce. Rather than laying off the 20%, all employees take a 20% reduction in work hours. This equates to a four-day work week rather than five-day. And accordingly, their pay declines by 20%. This spreads the pain across the board, but everyone still has a job providing them income. The employees then go out and file for unemployment with their state’s employment agency. Under the work-share program, they can apply for a percentage of unemployment benefits equal to the percentage reduction in pay. In this case, the employees can apply for 20% of the normal unemployment benefit.
Federal Pandemic Unemployment Compensation
The CARES Act created the Federal Pandemic Unemployment Compensation (FPUC), which a federally funded unemployment benefits of $600 per week. This is in addition to the normal state unemployment benefit. In order to receive this benefit, the recipient must qualify for at least $1 of state unemployment compensation. In our example, the employees would receive this $600 on top of their 20% pro rata state unemployment benefit. It is possible that with the pro rata work-share unemployment benefit plus the $600 FPUC weekly benefit that the employee is made 100% whole.
This strategy vastly improves the odds of everyone involved surviving the cash crunch. It allows employees to maintain income security. It allows businesses to save jobs, maintain a skilled workforce, and reduce costs by the same amount it hoped to save with layoffs. Also, when the need to cut costs has passed, it is easier for the business to ramp back up its operations.
How Long Will This Benefit Last?
Normal state unemployment benefits are capped at 26 weeks. However, another provision of the CARES Act increases this term to 39 weeks. The Pandemic Emergency Unemployment Compensation (PEUC) adds an additional 13 weeks of federally funded benefits once the state benefit has been exhausted. The extended benefits are available through December 31, 2020.
Now, work-share programs vary from state to state, each having their own requirements for employers and employees. For more information about your state’s program, check out the links here:
- District of Columbia Shared Work Program
- Maryland Work Sharing Program
- Pennsylvania Shared-Work Program
Virginia Work-Share Program
At present, Virginia does not have a work-share program. It had a work-share program that was repealed in 2016. However, recent legislation (VA Senate Bill 548, Chapter 1261, enacted April 22, 2020) includes the creation of one. Under the bill, the Virginia Employment Commission must establish and implement a temporary work-share program by January 1, 2021 and will run through July 1, 2022. Additionally, the creation of the program is conditioned upon receiving additional funding from the US Department of Labor. If no funds are received, no program is created. Given the timing and uncertainty of funding, this may end up providing no benefit to Virginia employees facing work hour reductions.
SC&H Group’s Tax team continues to keep a close watch on updates as they take place. If you have any questions on how these changes apply to your organization, please reach out to our team today.