There are countless reasons why businesses may face financial difficulties – from new products flopping, productions being halted due to a fire at the factory, to staff striking or weather conditions impacting a business. Labor costs make up a significant share of business operating costs. That’s why employers generally face three options: lay-offs, furlough, or work sharing.
Where a company initiates a pre-approved work-share program, jobs for qualified staff can be saved and costs can be reduced during critical times. In this article, we’ll discuss the concept of work sharing, under which conditions employers can apply for it, and what the financial consequences for staff are.
Work sharing, sometimes also referred to as short-time working or short-term compensation arrangements (from the German Kurzarbeit), is an approach initiated by companies to avoid lay-offs during economic downturns. Staff are required to work contractually agreed fewer hours or alternatively are furloughed. As a consequence, staff wages are reduced, but employers can apply for unemployment benefits for their staff to make up for some of the losses.
Work sharing is a means for businesses to retain staff during economic crises. Far from altruistic, the measure makes economic sense: without work-share programs, companies would be laying off qualified staff only to rehire new employees once the business recovers – a process that incurs considerable expenses.
Entire departments or all staff at a company can be asked to work share as long as certain conditions are met.
Work sharing is not the same as job sharing. During a job share, a full-time role is usually shared between two or more employees. Work-sharing refers to the reduction in work load and wages.
Generally, a company would set out any arrangements of short-time working programs in an employment contract. However, to qualify for work-sharing compensation through unemployment benefits, certain conditions need to be met by the employer and employee. Although work-sharing compensation arrangements are recognized by unemployment compensation agencies in 29 states, these can vary from state to state, but broadly involve the following:
In addition, work sharing cannot be used by companies to compensate for inventory issues or seasonal business closures. They cannot apply to the program in case of equipment maintenance causing work shortages. Many work-sharing programs are not intended to last longer than 12 months.
More extensive information on prerequisites for the payment of work-share compensation is available in the respective state guidance. Here’s an example by the Maryland Department of Labor.
Because of the wide-ranging work shortages causes by the coronavirus crisis, the US government has provided bailout funding of $2 trillion to support unemployment insurance, loans for smaller companies, and aids for specialist areas such as aviation. Many companies have also opted for work sharing during this time of crisis to avoid laying off staff once lockdown provisions come to an end. Qualification for benefits as part of a state’s work-share program will depend on regulations set forth by the individual states. In the US, employees generally must meet the following criteria to qualify:
Employees on short-time working programs will have their wages reduced. However, their employers may apply for part of the loss in wages to be recovered by the state.
Employees only qualify for work sharing if they are regularly employed by a company. As such, the following are excluded
Individual employees cannot typically apply to the work-sharing program. Instead, their employers must submit the application. However, staff could inform employers of the availability of such programs as long as a company is eligible. In some states, applications for work-sharing compensation made by a company can be back-dated by one week.
Not all US states have implemented work-sharing programs. Therefore, whether your company is eligible to apply for this type of unemployment insurance will depend on the state the business is registered and/or run in.
How much compensation you receive on top of your reduced wages depends on the hours you work each week.
Let’s look at an example. If your employer reduces your work load by 20% and you continue to receive 80% of your usual wages, your work-sharing benefit would be 20% of your unemployment insurance benefit. In summary:
For employees with children, an extra $8 can be applied per child for up to five dependents.
If your employer no longer has any work available, you would be eligible for regular unemployment benefits. Any paid leave taken during an employee’s work sharing time counts as normal hours worked and benefits are paid in the usual manner.
Payments of work-sharing benefits are usually restricted to 12 months. Extensions may be agreed upon depending on the severity of the economic situation.
Employers can also interrupt work sharing if, for example, a large contract job requires urgent help. Subsequently, the entitlement for work-sharing continues where it left of.
Most businesses will usually aim to avoid putting their employees on short-time working programs. This includes advising staff to take unused paid leave instead. Where a holiday has already been planned, employers can’t force staff to change their plans. For paid leave taken during a work-sharing period, employees will continue to receive the same benefits and wages agreed.
Where an employee goes on vacation having used up all their paid leave, no benefits will be paid. It is unlikely that an employer will continue to pay wages in such a case, but it’s best to check with your boss or employment contract for the specifics.
Unemployment benefits paid as part of a work-share program are taxable. The amount an employee will be taxed depends on the amount of benefits received. Participants generally pay income tax on all benefits.
Where an employee has another job on the side earning 40% or more of the amount of their work share benefits, those earnings are deducted from their unemployment benefits.
An employer may lay-off staff while they are enrolled on a work-share program. The employee will then no longer be part of the program, but may be able to claim regular unemployment benefits if eligible. Eligibility will depend on the requirements of the state that they work in.
Click here for important legal disclaimers.
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