April 23, 2020 Startups: Not Doing PPP? Do “Workshare” – It Can be a Better Deal Than PPP
For those startups that missed the Paycheck Protection Program (PPP) and need to now reduce burn, but do not want to lose their employees, “Workshare” is the PERFECT program for your startup and your employees.
Workshare is a State program (CA, NY and MA have very generous ones) whereby a startup can reduce the hours and compensation of their employees by up to 60% and the employees can collect unemployment benefits for the difference. There are some minor requirements, such as classifying employees in groups and treating all of the employees in those groups the same, but the programs are remarkably flexible.
A startup can reduce the employees’ time and compensation up to 60% and the employees can collect unemployment insurance to make them whole.
This was always a good deal, but a much better deal for lower paid employees, as a higher percentage of their reduced wages would be replaced by unemployment insurance.
With the $2.2T CARES Act, though, anyone collecting unemployment can collect an additional $600 per week. A GAME CHANGER!
Let’s take the example of a MA employee making $85K per year and their hours and salary are reduced by 60% or $45K per year:
- The amount of weekly unemployment benefits varies by states.
- The employee does not pay state taxes on unemployment in some states, like CA (MA and NY tax unemployment benefits).
- The employee always pays Federal taxes on unemployment benefits.
- The Federal taxes on unemployment benefits are less than the Federal taxes on regular payroll.
- There may be loan forgiveness issues if you do PPP and Workshare.
- The additional $600 is available only through July 31, 2020.
- The regular unemployment benefit can be collected for 39 weeks.