Following the passage of the CARES Act, millions of Americans have received the help they desperately needed during this economic crisis. As mentioned in more detail in our previous blog entry, one of the primary benefits of the CARES Act is that individuals are receiving an additional $600 a week through the end of July. As a result of this “unemployment on steroids”, many individuals are now earning more through unemployment than they did at their jobs. When, and if, these employers ask employees to come back to work, employees are pondering whether they should stay on unemployment or take the job, and the pay cut. While many are crying foul, the long-term incentive of employment likely trumps the short term “windfalls” of temporary assistance.
The minimum wage in California is $13 an hour for employers with more than 26 employees and $12 an hour for employers with less than 26 employees. An employee who earns $13 an hour and works 40 hours a week, earns $520 a week and $27,040 annually. In California, unemployment benefits are calculated by dividing the sum of wages earned during the highest quarter of an employee’s base period by 26, which means a minimum wage earner who only works 40 hours a week, would be entitled to $240 a week. Previously, the maximum amount an employee could receive was $450 a week, but with the CARES Act’s $600 addition, an employee can now receive a maximum of up to $1,050 a week, which means workers who earned between $12 - $24 an hour are now making more from unemployment benefits than their full time jobs.
On the surface, choosing between work and unemployment is an easy decision for these employees, but failing to come back to work could lead to major consequences. Most importantly, refusing to resume a job that wants you back could disqualify you from receiving unemployment benefits altogether. To be eligible for unemployment, you must be willing to accept “suitable work,” which means work in the individual’s usual occupation for which the employee is reasonably fitted. Accordingly, refusing to return to “suitable work” and subsequently being stripped of unemployment benefits could leave you with nothing.
Work is not “suitable,” however, if the “wages, hours, or other conditions of the work offered are substantially less favorable to the individual than those prevailing for similar work in the locality.” Thus, if your wages are dependent on tips, such as restaurant servers, you may still be able to collect unemployment after refusing to return to your position if tips aren’t part of the compensation anymore. Additionally, if the employment puts your “health, safety, and morals” at risk, it may not be considered “suitable employment.” For example, if you believe your prospective employer is not following CDC guidelines to maintain a safe workplace, you may be able to refuse an offer of employment and continue receiving unemployment benefits.
The $600 unemployment benefit will expire on July 31, 2020, and Congress is unlikely to extend the benefit past this date. When the benefit reverts back to the normal California amount on August 1, 2020, most earners will earn much less than their previous income. By that time, it may be difficult to find work, as the Economic Policy Institute predicts unemployment to reach 15.6% by July. Currently, an unemployed Californian can only collect 39 weeks of unemployment.
Unemployment benefits also do not account for the added value of your employer’s benefits, especially health insurance, if those are also provided. Indeed, employers typically pay the lion’s share of an employee’s health care premiums. The cost of continuing health benefits under the Consolidated Omnibus Budget Reconciliation Act (“COBRA") will be pricy. Altogether, healthcare and retirement benefits account for nearly 30% of an employee’s total compensation.
With the expanded Paycheck Protection Program (“PPP”), employers are incentivized to keep employees on their payroll. Specifically, if an employer procures a PPP loan, that loan may be completely forgivable if the employer uses 75% of the loan for payroll. Thus, employers have a fiscal interest in keeping employees on the payroll and putting them back to work. Millions of employees, however, are reluctant to take their minimum wage jobs back, especially because many of those jobs barely kept the lights on anyway. The pandemic is creating additional financial strain, including rising prices of goods (i.e., the meat industry) and families are incurring unique costs of keeping children at home 24/7. Accordingly, many workers might find it beneficial to ask for a raise, as they now have some bargaining power. Indeed, if an employer received a PPP loan and employees refuse to return to work, that employer will have extra money that it budgeted for payroll and will now have to go elsewhere, which may impact the employer’s eligibility for loan forgiveness. Nevertheless, employees should be cautious when turning down “suitable work,” as they may be left high and dry during an economic depression.