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Ensuring That Employees with Reduced Hours Qualify for Federal Pandemic Unemployment Compensation (“FPUC”) under the CARES Act for Non-Profit Employers
Note: This is the first of a two-part series concerning federal unemployment assistance.
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law. Under that Act, the federal government established two programs to expand unemployment assistance to workers who lose their jobs or work hours due to the COVID-19 pandemic.
The first program, the Federal Pandemic Unemployment Compensation (“FPUC”) program, provides eligible individuals with $600 per week in federal unemployment compensation to supplement the unemployment compensation provided by the state. The second program, the Pandemic Emergency Unemployment Compensation (“PEUC”) program, expands unemployment coverage beyond the time period provided by state unemployment.
The purpose of this bulletin is to explain the FPUC program, and, in a forthcoming bulletin, we will examine the PUA program. In this bulletin, we examine the interplay between the FPUC program and state unemployment insurance, and its interaction with leave and compensation under the Families First Coronavirus Response Act (“FFCRA”), which we discussed in a previous bulletin.
Most importantly and immediately, employers that are considering reducing employees’ work hours need to understand how the FPUC program operates, so that they do not, in trying to schedule additional hours for their employees, inadvertently disqualify those same employees from receiving the $600 weekly benefit from the federal government.
Federal Pandemic Unemployment Compensation
Section 2104 of the CARES Act creates the program, which provides $600 in weekly federal assistance to eligible and qualified individuals who receive state unemployment compensation. On April 4, the Department of Labor (“DOL”) issued a program letter providing guidance concerning operation of the program.
This guidance is essential reading for all employers, but particularly those that are or may be considering reducing employees’ work hours in response to the present public health emergency. The difference between an employee qualifying to receive the $600 in federal assistance and not qualifying, may be as little as an extra hour of scheduled work time, so it is imperative that employers understand this guidance and act accordingly, if they wish to enable their employees to receive the maximum amount of compensation.
DOL Guidance Regarding FPUC
In its guidance, DOL provides that “[i]f the individual is eligible to receive at least one dollar ($1) of underlying [state unemployment compensation] benefits for the claimed week, the claimant will receive the full $600.” (Appendix 1, Sec. 4.D.a.)
Therefore, in order to determine an individual’s eligibility for FPUC funds, the individual must determine their eligibility to receive state unemployment compensation. Further, the employer of an employee on a reduced work schedule should also examine the employee’s unemployment insurance eligibility in order to understand applicable work schedule limitations.
Eligibility for State Unemployment Compensation
In California, employees are eligible to receive state unemployment compensation if their employers make regular contributions to the state unemployment compensation fund on behalf of its employees through payroll taxes. Note that religious organizations that are operated primarily for religious purposes and operated, supervised, controlled, or principally supported by a church, convention, or association of churches are exempt from unemployment payroll taxes. Accordingly, employees of these religious organizations may be ineligible to receive state unemployment compensation and, therefore, ineligible for FPUC funds, unless their employer voluntarily contributes to the state unemployment compensation fund. However, the employees may instead be eligible for PUA funds, which we will examine in a forthcoming bulletin.
In order for an individual to qualify state unemployment compensation, the individual must be “unemployed” and must have earned at least the minimum amount of compensation in the statutory “base period” as the Unemployment Insurance Code defines those terms.
Qualifying as “Unemployed” under State Law
An individual is considered “unemployed” in any week in which the individual meets either of the conditions below:
(1) Any week during which he or she performs no services and, with respect to which, no wages are payable to him or her; or
(2) Any week of less than full-time work, if the wages payable to him or her with respect to the week, when reduced by twenty-five dollars ($25) or 25 percent of the wages payable, whichever is greater, do not equal or exceed his or her “weekly benefit amount.”
Therefore, an individual who loses their job entirely would qualify for state unemployment compensation, and an individual who loses work hours such that they are no longer working full-time may qualify subject to other requirements.
In order to ascertain whether an individual who has their work hours reduced would qualify, the individual and their employer must first determine the employee’s “weekly benefit amount” and then, based on the “weekly benefit amount,” the maximum amount of wages that the employee could earn during a week and still qualify to receive at least one dollar ($1).
Under the Unemployment Insurance Code, weekly benefit amounts range from $40 to $450 dollars depending on the employee’s highest income in any single calendar quarter (i.e., three-month period) during the four calendar quarters (i.e., one-year period) preceding the employee’s eligibility to receive such compensation. Eligible individuals who earn $11,700 or more in the highest grossing quarter qualify for a maximum of $450 in unemployment compensation. Note: Employees should review the Employment Development Department’s (“EDD”) fact sheet on the use of standard base periods and alternate base periods in order to determine their compensation and thus their weekly benefit amount.
While the calculation of the employee’s weekly benefit amount is integral, it is only half the equation because the statute provides that the employee qualifies as “unemployed” if the “wages payable … when reduced by twenty-five dollars ($25) or 25 percent of the wages payable, whichever is greater, do not equal or exceed his or her weekly benefit amount.” Most employees, even on reduced schedules, will earn in excess of $100 per week, in which case, the percentage-based test will control.
Calculating Maximum Wages Payable for Employees on Reduced Work Schedules
Using the percentage-based test, in order to calculate the maximum amount of wages payable that will still permit the employee to qualify for unemployment compensation, the employee and/or employer should use the following formula:
Employee’s weekly benefit amount multiplied by four (4) and then divided by three (3).
For example, for an individual who made $60,000 in the preceding year (or $15,000 in the highest quarter), the following equation would apply to determine the ceiling on wages payable in a week:
($450 x 4) / 3 = $600
Therefore, in order to qualify for state unemployment compensation, the employee in this example would have to earn less than $600 per week. The employee and employer would need to then determine how many hours at the employee’s wage rate the employee could work while not exceeding such ceiling.
Assuming that the employee earns less than the maximum permissible amount, EDD will provide the employee the difference between the income that the employee earned, when reduced by 25 percent, and the employee’s weekly benefit amount.
If the employee receives any unemployment compensation from the state, the employee will be entitled to the full $600 for that week from the federal government under the FPUC program.
However, if the employee’s compensation exceeds the applicable cap, the employee will not receive any funding from the state nor will the employee be eligible to receive any compensation under the FPUC program.
Because these are somewhat complicated calculations and the stakes are high, we recommend that employers confer with counsel on reduced work hour scheduling that is intended to provide compensation to the employee through work performed and under the FPUC program.
Below is a chart with four examples of how these calculations would apply in practice:
|Employee Salary||Hourly Salary||Weekly Benefit Amount||Weekly Wage Ceiling||Approximate Hours Per Week before Ceiling|
May an Employee Who Receives FFCRA Benefits Also Qualify to Receive FPUC?
A related question concerns the eligibility and qualification for those individuals who receive compensation under FFCRA to receive state unemployment compensation and FPUC. Unfortunately, the answer to this question is not clear at this time.
On March 26, one day before President Trump signed into law the CARES Act, DOL issued informal guidance concerning the receipt of unemployment compensation and FFCRA compensation. DOL stated: “If your employer provides you paid sick leave [under the Emergency Paid Sick Leave Act] or expanded family and medical leave [under the Emergency Family and Medical Leave Expansion Act], you are not eligible for unemployment insurance.”
However, when DOL issued its binding regulations concerning FFCRA leave and compensation on April 1, those regulations were silent as to the receipt of unemployment compensation. In other words, the DOL did not state that the receipt of FFCRA compensation would preclude receipt of unemployment compensation.
Furthermore, EDD does expressly restrict receipt of unemployment compensation where the individual received compensation under FFCRA. It is likely that EDD would treat FFCRA compensation comparable to paid sick leave, which EDD counts against an individual’s maximum weekly compensation amount in order to determine whether the individual qualifies for unemployment compensation.
We will provide additional information on this subject when information becomes available from DOL or EDD.
Can Reducing Work Hours Impact Loan Forgiveness Under the Payroll Protection Program?
Employers who have applied for or received SBA loans under the CARES Act’s Payroll Protection Program, may also want to consider how reducing hours (and therefore wages) may impact loan forgiveness. Under the Payroll Protection Program, employers can apply for forgiveness if they spend their loans on qualifying expenses over the eight weeks after receiving a loan. Qualifying expenses include payroll costs, utilities, mortgage interest (but not principal), and rent payments.
However, changes to payroll and employee headcounts can impact the amount of loan forgiveness. Specifically, in the SBA’s interim final rule on the program, the SBA states that at least 75 percent of the loan must be spent on payroll. The CARES Act also provides that the amount of loan forgiveness is reduced proportionally by any reduction in full-time equivalent employees during the eight-week period as compared to the average number of full-time equivalent employees on payroll between February 15, 2019 to June 30, 2019 OR January 1, 2020 to February 29, 2020. For seasonal employers, the average number of full-time employees is compared to a period beginning on February 15, 2019 and ending on June 30, 2019. Additionally, the amount of loan forgiveness will also be reduced under the Act by any reduction in pay in excess of 25 percent for those employees who make less than $100,000 annually. However, there is also a provision of the CARES Act that provides that if employers eliminate reductions to full-time employees or salaries/wages that occurred between February 15, 2020 and April 26, 2020 by no later than June 30, 2020, those reductions will not be taken into account in calculating loan forgiveness. In light of these rules, employers who have applied for or received a loan should consult with their lenders and/or CPAs on how reductions in hours may impact loan forgiveness.
LCW is continuing to monitor the evolving COVID-19 situation and update our clients frequently. For additional information, visit: https://www.lcwlegal.com/responding-to-COVID-19 or email us at COVIDfirstname.lastname@example.org.