Employers Face Tough Pay Decisions Amid the Coronavirus

The coronavirus crisis has had a significant impact on daily life and created a climate for businesses who now face challenging decisions while taking care of their employees, including their health and well-being. The recently enacted Coronavirus Aid, Relief and Economic Security (CARES) Act provides possible solutions for employers. The legislation for businesses offers low-interest loans to help keep employees on payroll, with loan forgiveness, and changes unemployment benefit amounts. But what about employers who need more cash than the legislation allows, even with the waiver of the personal guarantees and credit elsewhere provisions up to $200,000? And what about employers with over 500 employees who can take loans at low interest rates yet are required to repay those loans?

Alternative Options for Employers

Voluntary Short-Term Leave Plan – Designed to be attractive to those who have other sources of income (e.g., spouse is working, other forms of income, desires to work in other areas, etc.); allows employers to offer employees the opportunity to retain all their seniority and benefits and a targeted percentage of normal pay (e.g., 40 to 50 percent).

Voluntary Permanent Leave (or Early Retirement Window) – Designed for employees who are already contemplating retirement within the next 12 to 48 months; the plan could offer continuing medical coverage either through the company plan or an Individual Coverage Health Reimbursement Account (ICHRA).

Preferential Layoff Plan – Designed for employees with other sources of income or wishing to start a new business; under this option, a company offers the choice on a reverse seniority basis to employees to be voluntarily placed on layoff with full recall rights.

Defined Contribution Approach – Under this option with a stated goal of targeted savings, individuals continue to work in the same capacity with a defined contribution structure of costs, or equivalent bucket; the employee then chooses how to fill this bucket using a calculator until it is all absorbed.

Supplemental Unemployment Benefits – Designed for employers who are interested in providing a severance to employees through a payroll-tax free benefit; this would make employees whole over a time period after initial termination to allow them to adjust as well as to provide employers with cash-flow advantages.

Questions

The following are questions about the compensation rules governing employee furloughs, reduced hours and pay, on-call telecommuting and related subjects (for more information, review the U.S. DOL Fact Sheet #70).

What if an employer is facing difficulty in meeting payroll and is considering not paying non-exempt employees on a regular basis?

Generally, employers must pay employees covered by the Fair Labor Standards Act (FLSA) the full minimum wage and any statutory overtime due on the regularly scheduled payday for the workweek in question. Failure to do so constitutes a violation of the FLSA.

What if an employer wishes to reduce the wages or number of hours of an hourly employee?

The FLSA requires that all applicable non-exempt employees receive at least the applicable federal minimum wage for all hours worked. In a week in which employees work overtime, they must receive their regular rates of pay and overtime pay at the applicable statutory rate. Therefore, an employer can still lower an employee’s hourly rate if the rate paid is at least the minimum wage. There is nothing that precludes an employer from reducing the number of hours the employee is scheduled to work.

What about employers who are considering furlough options but may wish to have an employee on call or performing work at home? Is on-call time considered hours worked under the FLSA?

The regulations on this issue are tied to particular facts and circumstances. For example, consider the following:

• The employee was engaged to wait — this is work time.
• The employee was waiting to be engaged — this is not work time.
• Employees who perform part or all of their normal job duties during a furlough day are working while performing such duties.

What is the impact of sales compensation plans, annual incentive plans, etc.

Due to the economic slowdown, certain incentive targets may no longer be achievable. Revising hurdle rates and other targets should be considered and if deemed practical, changes should be implemented and communicated.

Conclusion

Employers who want to continue their businesses utilizing remote-work options may be able to do so. Others, whether through a government mandate or slowdown, may be forced to close their doors or reduce their workforce to a skeletal staff in various capacities.

This environment is no longer a short-term situation and may continue throughout the upcoming months. Employers need to know and understand their options concerning pay practices while retaining their most important and talented employees.