What to know about Short-Time Compensation programs

The Coronavirus Aid, Relief, and Economic Security Act (CARES) recently passed by the federal government includes federal funding for short-time compensation programs, also known as shared-work programs. The provisions are meant to increase participation in the programs.

The programs are run at the state level and act as an alternative to layoffs.There are currently 27 states that have short-time compensation programs in place. There’s a good chance you will be able to apply for one if you need to at least temporarily lay off your employees. 

While you may be considering participating in a shared-work plan already, you might not be fully informed on how it affects both your business and your employees. In this article we’ll take a look at what the programs generally entail, weigh the pros and cons, and dive into what the application process looks like. 

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What is a short-time compensation program?

A short-time compensation program—also known as a shared-work or work share program, depending on your state—is a resource that acts as an alternative to layoffs for small businesses whose available work has reduced. Under the programs, hours are reduced for groups of participating employees, who are then allowed to keep their job with the new, reduced hours of work, and still collect a percentage of unemployment insurance compensation. 

‍Example: A participating employer might reduce everyone’s hours by 20% instead of laying off 20% of their full-time workforce. As I previously mentioned, STC programs are run by state governments. This means they may vary when it comes to the details. However, certain federal requirements are to be met by the states in order to receive funding for the programs. These requirements include: 

• The reduction in hours worked must be in lieu of layoffs.
• Employers must submit an estimate of the number of layoffs that would have occurred without the program.
• The amount of unemployment compensation participating employees receive must be a prorated portion of what they would be receiving if not participating in the program. 
• Employers that offer any health, retirement, or other fringe benefits must certify that participating employees are still receiving the same benefits while working reduced hours.

Which states have STC programs?

There are currently 26 states operating their own, federally approved versions of STC programs. However, with the extra funding available, more states may join in. For now, here are the states that offer STC programs:

• Arizona
• Arkansas
• California
• Colorado
• Connecticut
• Florida
• Iowa
• Kansas
• Maine
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Missouri
• Nebraska
• New Hampshire
• Ohio
• New Jersey
• Oregon
• New York
• Pennsylvania
• Rhode Island
• Texas
• Vermont
• Washington
• Wisconsin

How do Short-Time Compensation programs work? 

First, you need to apply for a shared-work program through your state’s Unemployment Insurance agency. In order to do so, you must draw up a plan that generally must include: 

• How many employees will be in an “affected unit” (meaning a specific group of employees for which you are cutting hours) 
• How many hours will be reduced
• A description of how employees will be notified of the plan in advance
• An estimate of the number of employees that would be laid off if a shared work program is not implemented
• A statement that benefits will continue to be provided
• Certification that affected employees may participate in training to enhance their job skills during the program

When applying, you’ll need to have the following information handy: 

• Your company’s name, address, telephone number, fax number, and contact information for an authorized representative
• Your tax account number 
• The union name, local union number, and the union official’s name for any union affected by the plan 
• Names and social security numbers of everyone in the affected unit

Example

Again, each STC program differs slightly, based on the state in which you operate. However, the U.S. Department of Labor laid out an example of how the programs generally work: 

• Employer X has 300 employees, with 100 employees in each of three work units (units A, B, and C) who each work 40 hours per week.
• The demand for work in Unit A drops due to loss of two major contracts. Employer X needs to reduce work hours by 20 percent to meet current product demand.
• Employer X can either assign 20 employees to full layoff, or use the STC program and reduce hours for all 100 employees in Unit A by 20 percent (reduce weekly hours from 40 to 32). Then, Employer X applies for a 26-week STC plan.
• Under an approved STC plan, employees will receive STC payments equal to 20 percent of the amount they would have received from the UI program had they become fully unemployed.
• If all Unit A employees earned $40 per hour, the regular weekly earnings for 40 hours would be $1,600. Under the STC plan, Unit A employees work 32 hours and earn $1,280 from their employer, or $320 less than their regular pay.
• STC employees in Unit A would also receive 20 percent of their full UI weekly benefit because their hours were reduced 20 percent. For example, if an individual’s full UI weekly benefit amount would be $360, then the individual would be eligible to receive 20 percent of $360 or $72 per week as STC payments.
• If the employee’s hours are reduced as expected during the 26-week plan, the employee would receive weekly wages of $1,280 plus weekly STC amounts of $72 for a total of $1,352 per week. 

The logistics and specifics of your state’s program will differ slightly, but you can expect a typical program to look like the above example. 

What are the pros of Short-Time Compensation programs? 

Now, let’s get into the advantages of the programs and how they can help you and your employees. Employers who participate in a STC program are able to retain their existing, trained workforces instead of potentially having to deal with the high costs of hiring and onboarding an entirely new team when business picks back up. 

Employers can also improve morale within their business by avoiding layoffs. Employees often appreciate the ability to receive prorated unemployment benefits while keeping their job, even if their shifts are shorter.

What are the cons of Short-Time Compensation programs? 

The biggest blocker for working under an STC program is for employers who operate in multiple states. Implementing the program might be tough due to varying guidelines. Example: An employer has locations in both Texas and Minnesota.

Texas requires that the employer’s business hours be between 60% and 90% of their normal levels, but Minnesota only requires the hours to be between 50% and 80% of their normal levels. This means the employer will have to develop different plans for the different locations and submit each one to the respective state. 

Some STC programs aren’t as flexible as others, either. While Texas only requires employers to reduce hours for at least 10% of an affected unit (meaning a certain group of employees), and allows the reduction percentage to be different for different employees.

New York and Pennsylvania, however, require employers to reduce the weekly hours equally among all employees. One last con: employers often cannot hire additional employees for the affected unit while the program is in place. The state usually needs to approve any needed changes. 

‍Like any other important business decision, it’s necessary to weigh your options, look at the pros and cons of the program, and think about how it will impact both your business and your employees. If you have any questions about an STC program in your area, be sure to check out your state’s Unemployment Insurance page for more information, which you can find by visiting our resource center.