The entire country shuddered when Treasury Secretary Steven Mnuchin announced yesterday that unemployment in the U.S. could explode from all-time lows around 3% to around 20% — highs unseen since the Great Depression.
Employers do not want to lay off employees, but given stay-in-place orders, quarantines, and the severe downturn in the economy, they may have no choice. But even if unemployment skyrockets to 20%, as predicted by Mnuchin, still, 80% of the country will remain employed.
The critical unanswered question for employers dealing with the 80% is: Will they keep their same hours, or reduce them? Many employees will undoubtedly face reduction in hours, and their employers must consider the practical consequences of reductions in hours.
Can Employees Use Sick, Vacation or PTO Leave To Make Up The Difference In Reduced Hours?
Answer: Only if you allow it.
Under California law, employees are entitled to take paid sick leave for the “diagnosis, care, or treatment . . . or preventive care” for employees or their family members as well as certain issues related to domestic violence. Even the changes being considered by the U.S. Congress right now are limited to leave for coronavirus-related illness or care. So, paid sick leave would not allow employees to take sick leave to make up a difference for reduced hours.
PTO is a different story in California. Under most policies, employers allow PTO regardless of purpose, but typically, PTO days need to be approved. But, PTO almost certainly has to be used for “time off” – not to supplement an employee’s income for days for which they were not scheduled.
Think about it: If an hourly employee scheduled Monday to Friday asked for PTO pay for a Saturday, you would not allow it. So, you do not need to allow it for an unscheduled work day.
The question remains, however: Should you allow it anyway? In California, PTO is considered a “wage” which is “earned” when it accrues, and which must be paid on termination. Let’s put it this way: you are going to pay out accrued PTO on termination anyway. So you may want to consider allowing employees with reduced hours to make up any loss by depleting their PTO bank.
Do Employees With Reduced Hours Lose Employer-Sponsored Health Insurance?
Answer: Only if you reduce them below 30 hours/week.
COBRA allows an employee to continue lost health care coverage if he or she experiences a “triggering event.” The most common triggering event is termination, but COBRA also allows continued coverage when an employee experiences a reduction in hours of work causing a loss of coverage. So, yes, a reduction in hours can be a triggering event for COBRA coverage.
What is the threshold for loss of health coverage? The Affordable Care Act requires employers to provide health coverage to employees who work 30 hours or more per week, and most employer-sponsored health care plans hold to that threshold.
If you reduce an employee’s hours below 30 hours a week, he or she will likely lose coverage under your health care plan. If that happens, you will need to provide the employee with a COBRA notice the same way you would for a terminated employee.
Can Employees With Reduced Hours Apply For Unemployment?
In California, someone is considered “unemployed” if his or her regular wages are reduced through no fault of his or her own. There is a complicated formula that applies, but generally speaking, any significant reduction in hours will allow an employee to file an unemployment claim. As an employer, you have an obligation to issue a Form DE 2063, Notice of Reduced Earnings.
If We Reduce Hours For 50 Or More Employees, Will It Lead To WARN Act Liability?
Neither the federal nor California WARN Acts apply when an employee’s hours are only reduced, as opposed to a termination or a lengthy furlough.
What Notice Do We Need To Provide To Employees With Reduced Hours?
Answer: Yes, you should provide a Notice of Change In Relationship.
In California, Labor Code Section 2810.5 requires employers to provide employees with a Notice of Change In Relationship if they become unemployed. Not all reduced hours employees will qualify for unemployment, but as a precaution, you should provide the notice to them. In addition, you will need to provide employees who qualify for COBRA coverage with a COBRA Election Form.
This guidance covers the major issues applicable to private sector employers in California who are reducing the hours of employees, though there may be others, especially for employers in a union setting. If you have any questions, please reach out to us for assistance.
For more information, please contact Dan Handman at (310) 255-1820, or firstname.lastname@example.org.