Navigating the Coronavirus Unemployment / Return To Work Dilemma

I will be part of a Bloomberg Law panel tomorrow, May 13, entitled “Reopening During Coronavirus: What Employers Need to Know” (click the link for free registration, with CLE available for attorneys). One of the more interesting wage and hour and corporate strategy issues that I will talk about is the incentive that the federal Coronavirus Aid, Relief and Economic Security (CARES) Act’s “Federal Pandemic Unemployment Compensation” has created for employees and the dilemma for employers thinking about how to schedule employees as businesses reopen.

As we’ll discuss below, employees will (rightly) be considering a host of issues about whether and when to return to work, not all of which are financial. From a wage and hour standpoint, though, the main issue will be what they take home each week. A friend of mine spurred the idea for this post because they are impacted by the CARES Act’s FPUC benefit. Returning to work half-time this week when Indiana allowed most businesses to at least partially reopen would have resulted in taking home less than not working at all, even before considering the cost of day care or commuting.

Employers, too, are struggling with how to retain their employees while balancing ongoing closures, partial reopenings, and persistent lack of demand. In many cases, this means making tough decisions about reducing hours during each work day, or scheduling employees on alternating days or weeks. Employers should consider the impact of these decisions on employees’ unemployment benefits and employees’ incentives to return to work. The CARES Act has created a significant wage and hour dilemma for employers, but one that you can navigate with some planning and open discussion with employees.

Unemployment Basic Concepts

Every state’s unemployment insurance benefits vary somewhat. However, every state generally provides for weekly payments to employees who become unemployed through no fault of their own. Most states also allow employees to receive partial unemployment benefits if they work reduced hours or receive reduced earnings. The exact calculations of benefits and the maximums vary from state to state, but they all provide a weekly benefit amount based on an employee’s average wages earned in recent calendar quarters. In Illinois, for example, that weekly benefit amount is 47% of the average weekly wages, subject to a maximum of $484 per week, or up to $667 per week with certain dependents. Indiana uses an almost identical calculation, but caps the benefit at $390 per week for individuals. Those benefits phase out as employees earn wages over some percentage of that weekly benefit (50% in Illinois, for example). Many other factors may impact a weekly benefit amount, including PTO payouts, severance, salary continuations, workers’ compensation benefits, pensions, and more. The goal of the sliding scale reduction is to reduce or eliminate the penalty for returning to work, even part time. However, the federal CARES Act upends these incentives as we will discuss below.

The CARES Act and the $600 Federal Pandemic Unemployment Compensation

The federal CARES Act extends unemployment benefits to 39 weeks and temporarily adds another $600 per week in Federal Pandemic Unemployment Compensation for those receiving state unemployment compensation benefits. The payments continue through the last week of unemployment before July 31, 2020. Why does this payment matter? Employees are eligible for the full $600 payment regardless of the amount of their weekly benefit, and even if the state’s weekly benefit plus the $600 exceeds what the employee would have made working full time at their prior job (my friend’s situation). Also unlike state benefits, wages from part time or reduced hour work does not reduce the $600 payments. If an employee is receiving any regular state unemployment benefits during a particular week, they will qualify for the full $600 federal payment. Setting aside what may happen to unemployment certifications if employees turn down any return to work, employers should consider these impacts when scheduling employees for part-time or reduced schedules as businesses reopen. Let’s take a look at a couple of examples (under Illinois law, though other states will have similar outcomes).

The CARES Act Upends the Return to Work Balance

In each of these scenarios, we will make the math easy and assume that we have an employee with no dependents whose regular earnings were $1,000/week, making their weekly state unemployment benefit $470 (in Illinois, anyway).

Pre-CARES Act Scenarios

Before the CARES Act supplement, our hypothetical employee only would realize $940 for 2 weeks of unemployment. Working a part-time schedule (Schedule 2) would have helped, but the best approach would have been a 1 week on, 1 week off schedule. Now, look at how the CARES Act supplement changes that:

Post-CARES Act Scenarios

Unlike before, after the CARES Act, each of our scenarios results in the employee realizing more earnings than before the pandemic. More importantly, unlike before, the employee working the most hours (Scenario 3) would earn the least. This effect is only more pronounced for lower wage employees. Take an employee who was making the current City of Chicago minimum wage of $13/hour and working 30 hours per week before the pandemic, a total of $390. In Illinois, that employee would receive $183.30 as a weekly benefit plus $600 in CARES Act funds, a total of $783.30, which is more than double their earnings before the pandemic. When this employee asks to remain laid off, now you will understand why.

Employer Takeaways

Employees who are reluctant to return to work may have many solid reasons for doing so, and among them are often eminently logical financial decisions. Obviously, you have to make the best decision for your business, but you should also consider how those decisions impact your employees. When possible, make decisions that do the least amount to impact employees’ earnings while the CARES Act supplement remains available through July. This critical extra funding makes an extraordinary, positive impact for your employees. Even if you must return an employee to full time work, at a minimum, you should understand how the CARES Act supplement impacts employees when making those staffing decisions and respond to employees with financial concerns.