Work Sharing to Reduce Layoffs

Three men working in an industrial setting
••• Westend61/Getty Images

Work sharing, or short-time compensation (STC), is an Unemployment Insurance (UI) program that allows an employer to reduce the number of hours an employee works during a week while ​unemployment compensation makes up some of the difference in income. Work-sharing would typically become available during a business slowdown.

Work sharing is a win for both employers and employees. The employer can reduce the number of hours that an employee group works without potentially losing the employees. Employees affected by reduced hours can have their lost wages made up through a portion of their weekly unemployment compensation payments. 

So, for example, if a company is experiencing less demand for its products, and consequently fewer sales and down revenue, it can submit a plan to its state UI program requesting work sharing to cushion the reduced hours for its employees.

Work sharing also allows employers to avoid layoffs and potentially, the loss of critical employees, who might job search in a situation such as a mandatory job furlough. When the business has weathered the down business climate, it has the skilled and trained workers it needs to get back up to speed quickly.

The employees were spared the cost and pain of job searching during tough economic times. They had the income they needed to tend to life and family needs.

Key to the Success of Work Sharing

The key to the success of work sharing is the income replacement factor for employees. The use of this form of unemployment insurance (UI) enables employers to pursue this option for their employees.

An example of work sharing is: the employer needs to schedule employees to work four days (32 hours) a week for six months as an alternative to layoffs. The employer develops a plan and applies to the state UI program. If the plan is accepted, employees can then apply for and receive a portion of their normal compensation from the UI program.

Beginning in February 2012, according to the US Department of Labor Blog, guidance to states was issued by the department’s Employment and Training Administration about the practice of work sharing. The ability of states to use UI benefits for short-term compensation programs, often known as work sharing, was clarified with the signing of the Middle-Class Tax Relief and Job Creation Act of 2012.

One of the goals of the legislation was to help enable states to implement or expand a work sharing program, through the availability of approximately $100 million in federal grants. This also means that states that already have active work-sharing programs may now be eligible to begin receiving 100% federal reimbursement for working sharing payments.

Rules and regulations about work sharing vary by state. But, with the issuance of the Federal guidance in 2012, basic clarity exists in the states.

According to the National Employment Law Project, as of October 2014, 26 states had adopted work sharing programs. 24 states had not. As you might expect, during tough economic times, employers’ use of work sharing skyrockets.