In the wake of the economic slowdown caused by COVID-19, many employers find themselves weighing various options to reduce headcount costs, such as furloughs, reduced schedules, pay reductions, permanent layoffs, and job eliminations. In weighing these options, unemployment eligibility often enters the fold. State work-share programs are often overlooked in the decision-making process. This Alert addresses the Wisconsin Work-Share Program (Program), also called Short-Term Compensation or “STC,” administered by the Department of Workforce Development (DWD).
The Work-Share Program Generally
The Wisconsin Work-Share Program (Program) is designed to avoid layoffs during times of reduced business activity by allowing employees whose hours are reduced under an approved Work‐Share plan to receive unemployment benefits. Benefits are pro‐rated based on the partial work reduction. For example, if a plan reduces normal work hours by 10 percent, participating employees will receive 10 percent of their weekly benefit amount in addition to their wages.
Recent Wisconsin legislation passed in response to COVID-19 and the CARES Act loosened program requirements through December 31, 2020 by eliminating the work unit requirement, reducing the participant requirement from 20 to two, and revising the hour reduction range from 50 percent or under to 10 percent to 60 percent. This Alert covers the current rules.
To participate in the Program, employers must submit a Work-Share Plan to the DWD for approval. To comply with Program requirements, the Plan must:
- Designate which employees will participate in the plan.
- Include two or more Wisconsin employees.
- Include only employees who are regularly employed by the employer.
- Exclude seasonal, temporary, or staff employed on an intermittent basis from participation.
- Calculate reduced hours against an individual's normal weekly work hours, which cannot exceed 40 hours in a week for calculation purposes even if a salaried employee typically works more than 40 hours.
- Reduce participant hours 10 percent to 60 percent; the reduction must be the same for each participant and remain consistent each week of the plan.
- Include only employees who have been employed by the employer for at least three months as of the effective date of the plan.
- Specify the period or periods when the plan will be in effect.
- Describe a plan for giving notice, where feasible, to participating employees of changes in work schedules.
- Provide an estimate of the number of layoffs that would occur without implementation of the plan.
- Specify the effect on any fringe benefits provided by the employer to the employees who are included in the work-share program other than fringe benefits required by law.
- Include a statement affirming that the plan is in compliance with all employer obligations under applicable federal and state laws.
- Indicate whether the plan includes employer-sponsored training to enhance job skills and acknowledge that the employees in the work unit may participate in training.
Other key attributes of the Program include the following:
- Full-time, part-time, salaried and exempt employees can participate.
- Employers must maintain participating employees’ coverage under any defined benefit or defined contribution retirement plan under the same terms and conditions as if the employees were not included in the program.
- Employers must maintain participating employees’ health insurance coverage under the same terms and conditions as if the employees were not included in the program.
- Plans may be in effect for a total of six months over any five-year period.
- Employers may enter multiple plans, e.g., one plan may reduce participant hours by 20 percent, and a second plan may reduce participant hours by 50 percent.
- Employers may modify or terminate existing plans with approval from the DWD.
- The DWD may revoke the plan if the employer deviates from it without obtaining approval of a modification.
- Employees do not need to comply with work search requirements or be available to work for another employer while in the plan. However, employees must be available for work with the employer participating in the Work-Share Program including any extra hours offered and any employer sponsored training program.
- A plan can include employer-sponsored training to enhance job skills.
- Participating employees may participate in training funded under the federal Workforce Innovation and Opportunity Act without affecting availability for work, subject to the approval of the DWD.
How Does Participation Affect Unemployment Tax Liability?
Under the CARES Act, once a plan is approved, the federal government will pay 100 percent of the unemployment benefits paid through the plan. Payments made during the effective duration of the CARES Act will not affect future unemployment tax rates. Employee participants are also eligible to receive the $600 weekly benefit under the Federal Pandemic Unemployment Compensation program through July 25, 2020.
Benefits of Work-Share Plans
The principal benefit of work-share plans is that it extends benefits to those who would not be eligible under unemployment eligibility rules. Of course, employers may reduce hours without entering a Work-Share Program. Depending on the depth of the cuts, some employees may qualify for partial unemployment benefits. However, many will not because of eligibility limitations. Employees are not eligible for benefits if they work more than 32 hours or earn more than $500 in the benefit week. Under the Program, unemployment eligibility is based solely on the hour reduction. Therefore, an employee who works over 32 hours or earns more than $500 in a workweek would only be eligible for unemployment benefits if participating in an approved work-share plan.
Wage & Hour Implications
As noted above, Work-Share Plans may include exempt employees. Employers who wish to include exempt employees in such plans will presumably cut employee pay to reflect the hour reductions. Employers who do so, must proceed with caution to ensure compliance with the requirements of the Fair Labor Standards Act (FLSA or Act) and its state counterpart. That is because the hour-cut requirements of the program, coupled with the payroll cost-saving goals of the employer, place overtime exemptions at risk.
Let’s start with a brief primer. Under the FLSA and state counterpart, employers must pay all employees overtime unless they fall into one of several statutory exemptions. Most exempt employees fall into the executive, administrative, or professional exemption, which are commonly referred to as the “white-collar” or “EAP” exemptions. To qualify for these exemptions, the employee must (1) be paid at least $684 per week ($35,568 annually), (2) be paid on a “salary basis,” and (3) meet at least one of the exemption’s duties tests.
The program places overtime exemptions at risk in two ways. First, the pay reduction may cause the employee’s weekly wage to fall under the weekly salary threshold. Therefore, employers should perform a salary analysis of its exempt workforce when considering who to include in the program. Any employee whose pay falls under the threshold should be reclassified as non-exempt.
Second, pay reductions tied to fluctuations in hours worked run afoul of the FLSA’s salary basis requirement, which requires that an employee be compensated a predetermined amount each pay period, regardless of the quality or quantity of work. An employer may prospectively reduce employee pay in response to economic conditions without losing exemptions if the reduction is "bona fide" and "not designed to circumvent the requirement that the employees be paid their full salary in any work week in which they perform any work." However, if reductions change with such frequency that the salary is the functional equivalent of an hourly wage, the exemption may be lost. Thus, employers should carefully consider whether to include exempt employees in the program, especially if they have already engaged in pay reductions commensurate with hour reductions or believe they will need to modify the plan in the future.