Hours cut? You may get full aid relief
A quirk in the CARES Act means some California employees are eligible to earn more for working less.
That means in some cases, workers in California — and across the country — could end up temporarily receiving far more from the government for those lost hours than they would have earned by working them.
In practice, however, few companies and workers so far are taking advantage of the benefits, partly because of the unprecedented backlog of unemployment claims in California and other states’ unemployment offices, and partly because many business owners don’t yet fully understand the incentives created by the Coronavirus Aid, Relief and Economic Security Act to encourage businesses to reduce employees’ hours rather than lay them off.
“If employers knew about this option for their workers, there’s a lot of free money floating around, and it’s shocking that so few people take it up,” said Till von Wachter, a UCLA economics professor. “There are substantial financial gains and opportunities for workers in the current environment, and it’s just crazy that nobody’s taking it up.”
While it was widely known that the flat $600-a-week federal unemployment supplement would be temporarily paid to workers who lost their jobs during the pandemic, it was less understood — including by some lawmakers — that the payment would also apply to any worker receiving prorated unemployment benefits because their hours had been reduced through a so-called work-sharing or short-time program.
Such programs have been available in about 26 states for years. In California, benefits previously paid in approved work-sharing plans were proportionate to the hours reduced. In other words, a worker whose hours were cut 50% would receive 50% of the unemployment benefits paid if they were laid off.
The federal bailout package for the first time dramatically expanded coverage and incentives for work-sharing programs, including the extra $600 a week, which is not adjusted to reflect the actual reduction in hours.
“As long as you are receiving at least $1 in unemployment insurance, you are eligible for the $600,” Employment Development Department spokesperson Aubrey Henry said.
That came as a surprise to Sunil Kohli, 59, chief executive of Health Plus Inc. in Chino, whose company was recently approved for California’s work-sharing program. The firm, which manufactures dietary supplements, has cut the hours of 19 of its 28 employees by 20%. He assumed the federal subsidy would be prorated by the same amount.
“Wow, then they’ll come out ahead actually. Good for them,” Kohli said.
Kohli said he jumped at the chance to keep employees on the payroll, calling them part of his family. He said sales at his company declined as health stores such as GNC closed and governors across the country issued stay-at-home orders.
“I don’t want to let go of my people,” Kohli said. “It feels horrible.”
Kohli’s office manager, Karen Chastain, said some employees will make substantially more because of the flat $600 weekly federal payout.
“They are going to make way more money. There are some people here — probably several people — who don’t even make that much a week,” Chastain said. “It doesn’t seem to really be well thought out. It really doesn’t make much sense.”
In California, many workers getting their hours cut to four days a week from five could receive hundreds of extra dollars a week in work-sharing programs, according to an analysis by Von Wachter, who studies work-sharing.
“Nobody should take a substantial pay cut to help their employer out. That’s what the stimulus bill addresses,” Von Wachter said. An employer “could easily reduce everybody’s workday by one hour, put them on short-time [unemployment] compensation, and they would get 600 bucks a week. So that’s very beneficial to workers, and every employer in their right mind would want to help their workers out that way.”
But according to the latest figures, claims made through work-sharing programs represent only a fraction of total unemployment claims. As 26 million new claims were filed nationwide in the last five weeks, there were just 39,864 people nationwide claiming benefits through a work-sharing program as of April 4, according to the most recent data from the Labor Department.
Work-sharing programs, first introduced in California in 1978 and now on the books in more than half of states, were designed as an alternative to layoffs that would allow companies to rebound quickly after periods of economic strain. Rather than cutting a percentage of staff, employers could make a deal with their state. In California, employees whose hours are reduced by at least 10% but no more than 60% have been able to receive prorated unemployment benefits — and now $600 more.
Employees are eligible only if their employer fills out paperwork with the state.
Work-sharing programs saved more than half a million jobs during the Great Recession, according to an analysis of federal data by think tank Pew Research Center. In California alone, 356,571 employees were on work-share in 2009 and 2010, according to the EDD.
The economic relief Congress passed in March threw in a variety of incentives for employers to use work-sharing programs — including a temporary break on state payroll taxes — and millions of dollars to help states create or run the initiatives.
Some lawmakers didn’t realize how generous those federal incentives would be, including even senators who raised alarms before the bill was passed about how the flat $600 subsidy would pay some laid-off workers more per week than their previous paychecks, creating a disincentive to work.
South Carolina Republican Sen. Tim Scott, one of those who supported a failed amendment to ensure no worker received more on unemployment than they would have otherwise been paid, said he was not aware that work-share employees would receive the full $600 a week. He said his concern is that the federal subsidy will put pressure on companies to raise wages to compete with what people can make on unemployment.
But the effect of the extra $600 was debated during the law’s crafting. The flat $600 federal payout was a recognition from Congress that state unemployment systems were going to be beleaguered with millions of new unemployment claims — including many from people who traditionally don’t qualify, such as gig workers.
They concluded that offering a flat amount based on national averages would be the fastest, most efficient way to get money to those who need it. The archaic state systems are not technologically advanced enough to deal with prorating the federal subsidy to just make up the difference between what a state offers in unemployment and what a worker’s normal take-home pay would be, Upjohn Institute economist Susan Houseman said.
“They needed to do something that was very, very simple,” she said. “Was that ideal? No, it was not. But they were just trying to get a system in place that would get out the benefits.”
In the end, the determination by Congress was that “the people who will be making more — either as unemployed or work-share short-time — are people who are relatively low-wage anyway,” Houseman said.
Providing the $600-a-week federal supplement to people who were laid off, but not to those whose hours were reduced, might have caused employers to decide that workers would be better off financially if they lost their jobs, Houseman said.
“If you didn’t have the $600 applying to people on work-share, it could have been a disincentive,” Houseman said.
But she acknowledged that some businesses with work-share employees who make more money with the federal subsidy might find it harder to resume full-time operations until the $600-a-week payout ends July 31, assuming Congress does not extend it. In essence, the businesses would be asking employees to work more hours for less money.
“Think of the morale problems,” Houseman said.