Understanding and Calculating Partial Unemployment Benefits in California
In the midst of the current crisis, many employers are looking for ways to reduce operating costs without losing valuable employees. A common approach to this is providing reduced work schedules. Under such an arrangement, a current employee, still earning wages and receiving benefits, can be considered “unemployed” under the definition contained in Section 1252 of the California Unemployment Insurance Code. The key provision of this is that:
An individual is ‘unemployed’ in any week in which he or she meets any of the following conditions:
- Any week during which he or she performs no services and with respect to which no wages are payable to him or her.
- 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 . . .
- Any week during which he or she performs full-time work for five days as a juror, or as a witness under subpoena.”
Calculating Partial UI Benefit Amounts
It is never advisable to try to provide specifics to an employee as to how much (if anything) they will be eligible for in UI benefits. In the end, the EDD will decide. The full description of the process is found in Section 1279 of the California Unemployment Insurance Code.
If you would like to provide some general guidance, the “simple” way of identifying who might be eligible for partial UI benefits, and how much they might be eligible, for, follows these steps:
- Clarify how much the individual’s hours and pay will be cut, and how much they will still be earning in total wages per week.
- Understand how much the individual would be eligible for in UI benefits if they were completely unemployed. This is called the Weekly Benefit Amount (WBA) and will usually be calculated by dividing the earnings for the highest paid quarter of the base period (four previous calendar quarters after a one quarter “lag” period) by 26. The current base period is the four quarters of 2019. Much easier to use the EDD’s calculator rather than trying to figure it out! The UI benefit calculator will provide an estimate of the weekly UI benefit amount, which can range from $40 to $450 per week. The calculator can be accessed here: https://www.edd.ca.gov/unemployment/ui-calculator.htm
- Now, take the amount the individual will still be earning in weekly wages and subtract $25 or 25%, whichever is greater. This small portion of the wage is “allocated” each week and is disregarded (a “gift” from the EDD). The amount remaining (i.e., earnings over $25 or 75 percent of the earnings, whichever is smaller) is deducted from the claimant’s Weekly Benefit Amount (WBA), as estimated in step 2 above. If the deductible amount equals or exceeds the WBA, then they would not be eligible for any UI benefit for that week. If the amount is less than the WBA, the difference is what they would be eligible for in UI benefit for that week.
Here are a few sample scenarios using these three steps:
A. “Fred” earns $20 per hour and is getting a 40% reduction in pay…
- Fred’s usual weekly earnings are $800. After the reduction, he will still be earning $480 per week, and his pay will be reduced by $320.
- If Fred had been earning the same amount during the base period (four quarters after the lag quarter), according to the EDD calculator, his weekly benefit amount would be $401.
- Now, we subtract 25% from his current, reduced weekly wage of $480, and we get $480 – $120 = $360. We know that Fred (under this precise scenario) would be eligible for $401 (his UI weekly benefit) – $360 (his adjusted wages for the week) = $41.
B. “Wilma” earns $23 per hour and is getting a 50% reduction in pay…
- Wilma’s usual weekly earnings are $920. After the reduction, she will still be earning $460 and her pay will be reduced by $460.
- If Wilma had been earning the same amount during the base period (four quarters after the lag quarter), according to the EDD calculator, her weekly benefit amount would be $450.
- Now we subtract 25% from her current, reduced weekly wage of $460, and we get $460 – $115 = $345. We know that Wilma (under this precise scenario) would be eligible for $450 (her UI weekly benefit) – $345 (her adjusted wages for the week) = $105.
C. “Betty” earns $16 per hour and is getting a 20% reduction in pay…
- Betty’s usual weekly earnings are $640. After the reduction, she will be earning $512, and her pay will be reduced by $128.
- If Betty had been earning the same amount during the base period (four quarters after the lag quarter), according to the EDD calculator, her weekly benefit amount would be $321.
- Now we subtract 25% from her current, reduced weekly wage of $512, and we get $512 – $128 = $384. We know that Betty (under this precise scenario) would not be eligible for a UI weekly benefit because her current weekly wages of $384 exceed her UI benefit of $321.
CA Work Sharing Program
An alternative to the traditional partial unemployment program in California is the Work Sharing Program. About half of all states currently offer a similar program, and the CARES Act provides incentives to the others to start one. The concept is the same – keep employees, but reduce costs. For more information on this program, click here: https://edd.ca.gov/Unemployment/Work_Sharing_Program.htm.
In a regular reduced work, partial UI program, it is up to the employees to apply individually for UI. In the Work Sharing program, the employer handles the administration. There is quite a bit to do, and the application process (done by mail) runs two to three weeks during “normal” times. It is always advised to encourage employees to apply directly for UI even if the company is going through the Work Sharing application process.
The key requirements are that the reductions must affect at least 10% of the workforce (or operating unit); the hours and pay reductions must be between 10% and 60%; and, the employer must maintain benefits the same as before.
Calculating UI Benefit Amounts Under Work Sharing
Generally, the amount of UI benefit payout to the employee will be higher under Work Sharing. Rather than basing the amount on the remaining wages, through this program, the employee is eligible for a prorated share of his or her weekly unemployment benefit – essentially, the amount of their total UI benefit amount multiplied by the percentage of their reduction in pay.
Using our three examples above:
A. Fred was eligible for $41. Under Work Sharing, it would be the percentage of his pay reduction (40%) multiplied by his full weekly benefit amount ($401) = $160.40.
B. Wilma was eligible for $105. Under Work Sharing, it would be the percentage of her pay reduction (50%) multiplied by her full weekly benefit amount ($450) = $225.
C. Betty was eligible for zero. Under Work Sharing, it would be the percentage of her pay reduction (20%) multiplied by her full weekly benefit amount ($321) = $64.20.
Some Important Considerations
- The good news is that, in either program, the $600 PUA supplement will automatically be added for each week that the individual qualifies for at least $1.00 of UI benefit. Because it is an all or nothing payment, there is no prorating for partial UI claims.
- Exempt employees will rarely (if ever) be eligible for either of the partial benefits programs. First, of course, remember that the hours are not reduced, only the pay, for an exempt employee. In the regular program, if they are still exempt under the current salary threshold ($54,080), the remaining wages will exceed the maximum benefit amount of $450. There is no real clarity at this point as to whether or not an exempt employee would be eligible for benefits under Work Sharing. However, the application and weekly data collection require that the employer provide both hours AND pay reductions. Since there is no reduction in hours, it would seem that the exempt employee would not be eligible. This is anecdotally at this point, but nothing seems to indicate otherwise.
- If it is imperative that an exempt employee be eligible for partial UI, the only possible scenario would require a reduction that would have to be significant enough for them to go below the salary threshold, and they would then have to be converted to an hourly employee. Theoretically, an employee at a $55,000 annual salary, taking a 50% cut and switching to non-exempt, could possibly be eligible for partial UI under either regular or Work Sharing.
- For the Partial Unemployment Benefits, the EDD is currently waiving the requirement that the employer complete the DE 2063 Notice of Reduced Earnings Form.
- Yes, it is true (and very conceivable) that an employee can earn more by not working than working.
- In either program, the UI claims charges are applied to the employer’s reserve account. The charges for the $600 PUA supplement and the first week of UI charges (which had been a waiting period) are both picked up by the federal government.
- State and local governmental entities, certain nonprofit organizations, and federally-recognized Indian tribes that have elected the reimbursable method of paying for UI benefits will receive partial reimbursements (generally 50 percent) for all payments made to the state’s unemployment trust fund between March 13, 2020, and December 31, 2020. This emergency relief is provided by the federal CARES Act.
- Employees should know that paid out PTO and other wages are included for the calculation of eligible partial UI for the week in which they were paid.
- Benefits continuation is required in both programs, and Work Sharing is not to be used as a prelude to layoffs.
- Finally, because this cannot be overstated – Do not try to tell an employee how much they will be eligible for in UI benefits. Even using the calculations above, there are unknowns that may affect the benefit amount for a given week. Employees may have income from a second job, a garnishment, a last-second switch to Sick Leave or Extended FMLA or a sudden urge to cash out some PTO. There are just too many variables to do more than provide a very general guideline with a lot of disclaimers.