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COVID-19 Employer Options

Author: Jason Klein

Contributing Editor: Blaire Farine

COVID-19 has caused many business owners to make impossible decisions in maintaining operations while still paying employee salaries. As business costs increase, the ability to pay employees inversely decreases. In deciding what to do next, business owners have options in how to move forward with their employees. Depending on your employment contract with the employee, you may have the following choices.

1. Option 1- Terminate for COVID-19 Reasons, if Applicable

If letting your employee go is your only option, but you are apprehensive of unemployment chargebacks, you are in luck. The Texas Workforce Commission announced that state unemployment insurance benefits paid as the result of COVID-19 will not be charged against employer accounts. "There will be no chargeback to any Texas employers for claims filed due to COVID-19.”[1] If the reason for the job separation is related to COVID-19, the employer's account is not supposed to be charged. Employers who have had to lay off employees or reduce their hours due to the COVID-19 pandemic need to tell TWC that the employees’ job separation or reduction in hours is due to the pandemic. When responding to the unemployment claim, the employer should clearly note that the layoff or reduction in hours was due to COVID-19 because of a lack of business, or the business having to shut down completely.

If your business was mandated to shut down because of COVID-19 that resulted in having to let go of employees, you will not have to pay the chargeback amount. A copy of the shut down order must be provided, and an explanation that the closure was mandated by local or state order or explaining the lack of business due to the shutdown. The reason cannot be a health precaution.

2. Option 2- Reduce Employee Hours

The first step in reducing an employee’s hours is to determine if they are an “exempt” or “unexempt” employee.

An exempt employee is a salaried employee and is not entitled to overtime pay by the Fair Labor Standards Act (FLSA). These salaried employees receive the same amount of pay per pay period, even if they put in overtime hours. Exempt employees generally must receive a salary of at least $684 per week per federal guidelines. If salaried, an employee who is still with the same company but has a reduction in pay may not qualify for unemployment benefits. However, there is a rule called the “20% rule.” This rule applies to anyone who has had more than a 20% reduction in pay which might give him or her cause to voluntarily quit and file an unemployment claim. Additionally, under the FLSA, it is prohibited to reduce an exempt employee’s salary based on normal operating requirements. Employers may change employee’s salaries for upcoming pay periods, alternatively. For example, you can decrease all employee’s salaries by 4 percent for the upcoming fiscal year.

For nonexempt employees, you can decrease the employees’ pay, provided the reduced amount is no less than the federal or state minimum hourly wage, whichever is greater. Texas’ minimum wage is $7.25/ hour with a weekly minimum wage of $290/ 40 hours per week. A nonexempt (hourly) employee is eligible to be paid overtime for work in excess of 40 hours per week, per federal guidelines. You can lower an exempt employee’s pay, as long the reduced amount is at least $684 per week or the applicable state-required amount — whichever is higher. Texas adheres to this amount.

3. Option 3- Shared Work Program

If you would like to keep your employee, but reduce work hours, the Shared Work Program is another option to support your employee. This option allows you to supplement wages lost with partial unemployment benefits. You may reduce the employee’s work hours by at least 10 percent but not more than 40 percent and must affect at least 10 percent of the employees in a specific unit.[2] A shared work plan must be an alternative to layoffs and the number of employees who would be laid off without participation must be disclosed.

To sign up, submit a Shared Work Plan application on your Employer Benefits Services Portal.

All of these options will have a significant impact on your employees. It is best to give as much notice as possible when making these changes.

Nothing in this article is intended to be considered legal advice. If you have additional COVID related employee or business questions, contact Attorney Jason Klein at jklein@kmd.law. Please do not hesitate to reach out to us at Kearney, McWilliams & Davis for your legal concerns.