With the coronavirus resurging, Governor Gina Raimondo acted prudently to “pause” Rhode Island’s reopening and offer new aid to struggling businesses and workers. But a blindspot in the state’s new business grant program will cut paychecks, strain state finances and slow economic recovery. The policy should be quickly revised.
The governor rolled out two measures to support Rhode Islanders during the pause, both funded through the Coronavirus Relief Fund (CRF), a pot of federal money given to the state in the spring. The first is an unemployment insurance supplement providing an extra $200 per week for two weeks to jobless Rhode Islanders. The second is a grant program offering up to $50,000 to businesses likely to be most impacted by the shutdown.
The grant program is akin to a targeted, state-level version of the Paycheck Protection Program (PPP), which offered forgivable loans to businesses hit by the first wave of the coronavirus. But there’s one huge difference: PPP generally barred recipients from laying off employees, while the “RI on Pause” program has no such condition. Businesses have little reason not to scoop up grant dollars while sending workers to the unemployment line. Program guidance merely “encourages” employers to hold on to workers:
The State encourages all businesses to avoid layoffs or furloughs and continue paying employees to the greatest extent feasible. The money may be used to continue to pay employees.
Allowing companies to lay off employees while receiving grant funds is bad for workers, bad for economic growth and bad for state finances. When workers are let go, unemployment benefits only cover a share of what they earned while employed—resulting in severe pay cuts that worsen financial insecurity and impair economic recovery.
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Take, for example, a food service worker in Rhode Island receiving an hourly wage of $12.58, the median wage in that industry. (The new grant program is tailored to restaurants and similar businesses which together employ between one tenth and one fifth of the state’s workforce.) This worker earns a weekly paycheck of $503 if working full-time. If laid off, she receives a weekly unemployment insurance payment of just $252—an immediate 50% pay cut—from the state UI fund. With the $200 weekly supplement, the worker receives a total of $452 in unemployment compensation—90% of her previous earnings, equivalent to a $51 pay cut each week.
Laid off workers also tend to lose fringe benefits including employer-sponsored health insurance, if they were provided such benefits in the first place. According to one estimate, roughly 75,000 workers in Rhode Island have lost health coverage due to COVID-19 job losses.
Policymakers should promptly revise grant rules to disallow job cuts. Instead, the state should facilitate and expedite grant recipients’ enrollment in the little-known program known as workshare—which can preserve jobs, prevent pay cuts and shield state finances from another explosion of unemployment insurance payments.
Here’s how the state Department of Labor and Training explains workshare:
Rhode Island’s WorkShare Program allows you to reduce the work hours of your permanent employees by up to 50%. Then, your workers collect partial unemployment benefits to make up for some of the lost wages. You save payroll and keep your skilled workforce in place. Your employees hang onto their jobs and make more money than if they were fully laid off.
Rhode Island has had a workshare program since 1991, but recent changes to federal law have made it especially advantageous. Thanks to the CARES Act, the US Treasury is paying all workshare outlays through the end of the year. If a worker is laid off, she receives unemployment benefits paid out from the state’s dwindling UI fund. If she is instead placed on workshare, the costs of supporting her income can be fully covered by the federal government.
In fact, workshare enrollment can increase worker pay, giving extra cash to Rhode Islanders impacted by the COVID-19 pause at no cost to the state. That’s more money for workers to spend and save, boosting the economy, bolstering households’ financial security and generating tax revenue.
To understand how it works, let’s return to the food service worker earning $12.58 per hour and taking home a weekly paycheck of $503. Remember, if this worker is laid off, she receives $252 per week in unemployment compensation from the state and an extra $200 from federal CRF funds.
Say the employer, seeing business curtailed by the virus but receiving an RI on Pause grant that disallows layoffs, instead enrolls in workshare and reduces paid hours by 50%. (The Director of Labor and Training should clarify that, for the duration of the pause, an employer can maintain paid hours at a reduced level without requiring workers to report to the job site.) The employers’ payroll costs immediately drop by half, and the remaining half can be fully covered by the grant, as grant rules already specify that “the money may be used to continue to pay employees.” The furloughed worker receives $252—half her normal weekly paycheck—from the employer, who in turn taps federal CRF grant funds. The state kicks in another $200 in CRF dollars in the form of an unemployment insurance supplement (workshare benefits are paid through the state’s UI system, even if they are funded by the federal government), bringing pay up to $452. Notably, this is exactly equal to what the worker would receive if the business had fired her rather than furloughed her—but the costs are paid entirely from federal CRF funds. The state pays nothing.
Through workshare, the federal government then adds an extra $126, one-fourth of the worker’s previous earnings. The worker now receives $578 per week—more than 100% of her previous earnings. She is now paid more money than before the pause, her employer is able to reduce payroll costs to $0 (using the grant to maintain 50% hours paid), and she is still connected to the employer and keeps employer-sponsored health coverage if it was previously offered.
Under the traditional layoff scenario incentivized by current grant rules, the state pays out $252 to the worker and adds on $200 in federal CRF funds. The worker loses roughly 10% of her pay, plus any fringe benefits she received while employed. Under the workshare scenario, the state pays $0, the worker receives $252 from the employer’s CRF-funded RI on Pause grant, another $200 in supplemental unemployment benefits is added from the CRF, and $126 in workshare payments from the US Treasury tops it all off. The state saves money while workers receive a pay raise and hold on to fringe benefits.
Since workshare is such a win-win-win for workers, employers and state finances, policymakers should do everything they can to maximize takeup and minimize layoffs. Merely “encouraging” employers to avoid job cuts is not enough – use of workshare has been low throughout the pandemic, suggesting that even well-intentioned employers are unaware of the program or hesitant to enroll. The state should ensure that workshare is a ready-to-go option for employers, and require that businesses maintain payroll as a condition of receiving a Rhode Island on Pause grant.
All this requires is a simple change in the grant program to disallow layoffs, paired with tweaks to streamline and update the state’s workshare application and enforcement processes. By not making these changes, state policymakers are leaving federal dollars on the table, unnecessarily harming workers’ paychecks, state coffers and economic recovery.