The coronavirus pandemic is a prime example of a sudden and unexpected change in circumstances that can affect businesses regardless of size, product or service.  California has not seen such an impact on employers and the economy in decades. When unexpected events happen — whether largescale or affecting only one business — employers need to be prepared to shift gears or, at a minimum, know where to turn for ways to protect their employees and the future of the business.  The California Employment Development Department (EDD) offers several resources to support employer success, including the EDD Work Sharing Program.

A work sharing program allows an employer to reduce personnel time and payroll while still retaining their employment.  Employers can use unemployment insurance in California to subsidize the employee’s newly reduced pay.  The overall result is a reduction in operating costs, giving the employer some breathing room in times of financial insecurity. 

How the EDD Work Sharing Program Provides Economic Relief for Employers in California

Businesses experiencing financial distress may find short-term economic relief and long-term survival by reducing expenses in the near-term.  When the reduction affects work hours and payroll, employers often think first of layoffs, plant closures, and unemployment insurance.  However, the EDD Work Sharing Program offers employers an alternative to these more extreme measures.  

Instead of releasing employees, an employer can reduce work hours, and employees can collect unemployment insurance benefits to make up the difference in earnings.  By learning about the work sharing program, employers can understand how to better protect employees and the business as a whole in lean times like the economic struggles caused by COVID-19.

What is the California EDD Work Sharing Program?

California is one of several states with a work sharing program.  To be eligible for participation in the California Work Sharing Program, employers must meet the following requirements:

• The employer is legally registered as a California business with an active California Payroll Employer Account Number.
• At least two employees and ten percent of a business’s workforce — or in a single department — must be affected by the reduction in wages and hours.
• Wages and hours must be reduced between ten and 60 percent.
• Benefits such as health insurance and retirement must remain the same or match those of employees not participating in the work sharing program.
• The bargaining unit of affected employees must agree to employee participation and sign the Work Sharing application.
• The employer must give employees advance notice of intent to participate in the work sharing program.
• The employer must disclose the number of layoffs to be avoided by using the work sharing option.
• The employer must identify all participating employees and work units by name and Social Security number.
• The employer must provide the EDD certain designated information and reports.

Even if an employer meets the requirements above, participation in a work sharing program cannot be used in the following situations:

• For independent contractors.
• As a means to transition to layoffs.
• For temporary, seasonal, intermittent, and leased employees.
• For the employer’s corporate officers or major stockholders.

California Work Sharing Program Benefits

The benefit for employees participating in the EDD Work Sharing Program is obvious — they avoid being laid off, remain employees with the benefits provided at their normal level of employment, and receive unemployment benefits to help compensate for the reduction in hours and wages. 

Employers benefit through participation in a work sharing program, too.  The short-term benefit is the reduction in payroll costs, but the long-term benefits could arguably be greater.  Participation in a work sharing program helps employers avoid or minimize layoffs.  By retaining current employees, albeit at reduced wages and hours, an employer can decrease or even eliminate costs associated with recruiting and training new employees.   

Complexities of Participating in a Work Sharing Plan

Participating in the EDD Work Sharing Program can be immensely helpful for employers who are experiencing financial difficulties but have every reason to expect the business’s financial circumstances to improve. However, employers should be mindful of how new legislation affects eligibility or the impact of participation. Following are some important points to remember:

• Participation in the EDD Work Sharing Program could have an impact on the terms of the business’s Payroll Protection Program (PPP) loan.  Specifically, depending on the timing of the Work Sharing Plan, participation could negatively impact eligibility for forgiveness of the PPP loan.
• As of January 1, 2020, all California workers are considered employees under AB5 unless an employer can demonstrate employees are exempt from that law.  The scope of AB5 was expanded on September 4, 2020, by AB2257.  Workers who are not classified as employees under AB2257 are not eligible for California Work Sharing Program benefits.
• A California employer can have only a single work sharing plan regardless of the number of locations.  A work sharing plan is effective for 12 months.  An employer operating under an existing work sharing plan can apply to extend the plan, add employees to an existing plan, or discontinue participation.
• A California employer may have to change an exempt employee’s status to non-exempt (hourly) status for that employee to participate in a work sharing plan.  If that occurs, the employer should inform the employee in writing that the employee may not work off the clock as well as must take California compliant meal and rest breaks.

California Employer Lawyers Can Help Navigate Programs Available to Struggling Employers

California employers have options for dealing with old and new programs for financial assistance.  Employers looking beyond layoffs can benefit from participation in the EDD work sharing program, but they need experienced counsel to coordinate benefits available under different programs.  For one of the top full-service California employer lawyers who can help with this and other questions, call the Law Offices of Susan A. Rodriguez, APC.  With nearly three decades of employer defense practice, Susan A. Rodriguez has the experience and resources to guide your business through stormy times. For a consultation, call (310) 350-9995 or complete the firm’s online contact form.

Posted by Susan A. Rodriguez, Esq.

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