As Illinois employers ponder their futures amid the COVID-19 crisis, many are trying to determine whether some form of reducing employees’ hours is the solution. Many have inquired whether their employees can make up the difference in pay through unemployment compensation (UC) benefits through the Illinois Unemployment Insurance Act, and now possibly with enhanced benefit through the federal Coronavirus Aid, Relief and Economic Security Act (CARES). The answer to this question is, as with so many legal questions, it depends.

Many employers are doing everything they can to keep their employees employed, potentially with all their benefits, but with the closure or partial closure of businesses (some by governmental orders) and a general reduction in work, they simply cannot afford to keep everyone fully employed. Employers are contemplating many scenarios to try and stay afloat short of outright termination, such as reducing hours to part time each day, or working every other day, or even one week on and one week off. The question becomes whether this is good for the employee and for the employer.

Payment for Reduced Hours

The Illinois Unemployment Insurance Act (the Act) generally provides for benefits when employees become unemployed through no fault of their own. Importantly, although not specifically stated in the law, the Act also allows for payment to employees whose hours have been reduced, in some circumstances. Currently, individuals who are unemployed are provided with a “weekly benefit amount” (WBA) of 47% of their average weekly wages, as calculated by looking at the prior two quarters of earnings and dividing by 26 weeks, then reducing down to 47%. Individuals can receive this amount if they are entirely unemployed, up to a maximum of $484 per week. Employees whose hours have been reduced also may be entitled to pay for some of the reduced hours, depending on the specific circumstances.

The first mathematical calculation is simple: If the employee’s hours are reduced to an amount that results in pay of more than 47% of their regular wages in a particular week, that employee will not be considered unemployed and will not be entitled to any UC. On the other hand, if the employee’s hours in a particular week are reduced by more than 47%, the employee will be entitled to some unemployment benefits (and will be considered “unemployed,” or more aptly, “underemployed”). For example:

  • Employee earns an average of $1000 per week. His/her weekly benefit amount in Illinois would be $470 (47% of $1000) in a week in which no work is performed. If employee is reduced to two days per week (or the equivalent part-time work of 16 hours), and is thus earning $400, the employee would be eligible to receive $70 in unemployment benefits ($470 - $400).
  • Employee earns an average of $1000 per week, and hours are reduced by 50%, the employee will have earned $500 that week and therefore not be eligible for any unemployment that week because he/she earned more wages than the WBA of $470.

Thus, employees working reduced hours in a week may or may not be eligible to receive UC. On the other hand, when feasible for the business, employers who need to reduce work schedules can help employees more if they opt to go with a reduction in hours in weeklong increments, such as work one week, off one week. Example:

  • Employee earns $1000 per week, with a WBA of $470. If employee works one week, he earns $1000, and if he does not work at all the following week, he will receive $470 in unemployment, for a total of $1470 over two weeks. Compare this to the above scenario in which a reduction in hours by 50% yields the employee only $1000 over two weeks.

Federal CARES Act and $600 Federal Pandemic Unemployment Compensation

Under the CARES Act, the federal government will provide up to $600 per week in additional Federal Pandemic Unemployment Compensation for those receiving unemployment compensation. The Illinois Department of Employment Security (IDES) published a document on its website on March 31, 2020 stating: “Once the stimulus package has been implemented in Illinois, individuals receiving unemployment benefits will receive an additional $600 each week above what they would receive in regular unemployment benefits until July 31, 2020.” https://www2.illinois.gov/ides/News%20%20Announcements%20Doc%20Library/Federal-Stimulus-UI-FAQ-March2020.pdf.

Thus, at some time in the near future, some employees will become eligible for an additional $600 per week payment, on top of their Illinois unemployment benefits. Further, it appears that this $600 payment is provided even if the employee was not making that much at the time s/he lost his/her job, or if combined with regular Illinois UC ends up receiving more than his/her prior wages. What is still unclear, however, is whether this $600 payment is available only to fully unemployed individuals, individuals who are fully unemployed in weeklong increments, or to individuals who qualify for some UC due to reduced hours during the week. Employers will need to wait for additional insight from the Department of the Treasury, the Department of Labor, and/or the IDES.

Other Important Considerations

When determining whether to reduce hours, days, or weeks in order to keep employees employed instead of a full termination, there are several other issues and pitfalls to consider.

  • Employers should check with their medical insurance carriers to make sure that employees are still eligible for health insurance even with the reduced hours. If employees are required to utilize COBRA, and/or if the employer agrees to cover employees’ insurance payments, employers should consider requiring a written agreement providing for the reimbursement of those payments from future paychecks once the employee is back to full-time work. The agreement should also provide that if the employee does not return to full time work (whether voluntarily or involuntarily), the employee must reimburse the employer directly. Under the Illinois Wage Payment and Collection Act, the employee must agree in writing to all deductions from paychecks at the time the deduction is made, but a reimbursement schedule for future deductions agreed upon at the time of the agreement can suffice.
  • Before reducing the pay of any employee, the Illinois Wage Payment and Collection Act requires that employers give written notice in advance of the reduction (and we recommend obtaining an acknowledgement of receipt either with a signature or electronically if the employee is working at home).
  • Employees whose pay or hours are significantly reduced may be allowed to voluntarily quit and still claim “good cause” due to this “substantial change” and still qualify for unemployment compensation. Thus, it is possible that if the employer significantly cuts hours in an effort to keep the employee employed, the employee might still choose to quit and be entitled to regular and enhanced unemployment benefits.
  • Employers should consult with their attorney for advice pertaining to the Fair Labor Standards Act, the Illinois Wage Payment and Collection Act, and the Illinois Minimum Wage Law prior to cutting the hours or salaries of FLSA-exempt employees.