Staying Connected with Your Employees: Temporary Hours Reduction or Work Share Program?

Employers facing changes in their business or broader economic downturns must find ways to respond and weather the storm.  Typically, this means cutting expenses, while maintaining their ability to operate.  For many (if not most) businesses, payroll is the single largest expense item.  And when business slows, employees are left with excess capacity and are not fully utilized.  Consequently, layoffs and hours reductions are one of the first items on the list of options an employer must consider when responding to changing business conditions.

Employees who are laid off permanently can file for unemployment under their state’s unemployment compensation (UC) system.  But what if an employer wants to retain its employees and reduce their hours instead of laying them off?

Temporary Hours Reductions

A temporary hours reduction is one option.  Employees whose work hours (and corresponding pay) are temporarily reduced, may qualify for unemployment benefits.  In Oregon, for example, a full-time employee may qualify for unemployment benefits in any week of less than full-time work so long as the employee does not earn wages that exceed the individual’s weekly benefit amount (WBA).  The WBA in Oregon is 1.25% of the total earnings over a 12-month “base” period, subject to a weekly minimum of $151 and a maximum of $648.

By way of example, an employee, Employee A, earning $15 per hour, working 40 hours per week for the past year would be eligible to receive up to $390 per week in regular unemployment benefits if they were fully laid off.  Instead of being fully laid off, if Employee A’s hours were temporarily reduced to 24 hours per week, he would earn $360 per week in wages and be eligible for $30 per week of unemployment (the difference between his wages and his WBA).  Thus, for each week during the hours reduction, Employee A would receive a UC benefit of $30 and his total compensation would be $210 less than his full-time earnings of $600 per week.

Compare this to Employee B, who earns $30 per hour.  If Employee B’s hours were temporarily reduced from 40 to 24 hours per week, she would earn $720 per week in wages.  Because the employee’s WBA ($30 x 2080 x 1.25% = $790) exceeds Oregon’s maximum WBA of $648, Employee B’s benefits are capped at $648 and she would not be eligible for any UC.

Work Share Programs

Many states—27 at last count—have developed so-called Work Share or Shared Work programs.  These programs allow employers facing a temporary downturn in business to share available work among a group of employees instead of laying off employees.  (These Work Share programs are referred to as Short Time Compensation under federal law.)  The employees participating in Work Share may then receive partial UC benefits while working reduced hours.  Under the Work Share program, it does not matter whether the employee earns more than his WBA from his Work Share employer.  (Earnings from alternative sources, i.e. retirement benefits or a second part-time job, may reduce the amount of benefit received.)

To be clear, the purpose of Work Share programs is to avoid a layoff, not to subsidize wages.  The idea is that if employees keep working during a temporary slowdown, employers can more quickly gear up when business conditions improve and keeping employees employed, even at reduced hours, is better than employees going on to the unemployment rolls entirely.  In Oregon, the reduction in hours must be at least 20% but no more than 40% and at least 3 employees must be affected.  These requirements vary by state.  The onus is on the employer to apply with the employment department for approval of a proposed Work Share plan.

Unlike a temporary hours reduction, an employee participating in Work Share may access “partial unemployment.”  Partial unemployment under Oregon law provides compensation to an employee whose hours have been reduced pursuant to a Work Share program, including for employees who otherwise might not qualify for benefits.  In that situation, the compensation is the percentage that the employee’s hours and wages were reduced multiplied by the WBA.

Using the examples above, if Employee A’s employer applied for and received approval for its Work Share plan, Employee A’s hours would be reduced by 40%.  Employee A would still receive $360 per week in wages, but would also receive 40 percent (the proportion of the hours and wage reduction) of his WBA of $390, or $156.  Under Work Share, Employee A would receive $516 per week ($360 + $156), which is $126 more than under a temporary hours reduction.

Similarly, if Employee B’s employer participated in Work Share, Employee B would still earn wages of $720 per week.  In addition, she would also receive 40 percent of her WBA, or $259.20, for a total of $979.20 per week.  This is $259.20 more than she would receive under a temporary hours reduction.

CARES Act Supplement

In response to the COVID-19 pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES” Act), which we wrote about here.  Among other things, the CARES Act provides an additional $600 per week to individuals who were laid off for COVID-19-related reasons and who otherwise qualify for unemployment benefits.  This additional amount is not payable for any week of unemployment ending after July 31, 2020.  Accordingly, in states where the week of unemployment ends on a Saturday, the last week that the CARES $600 payment may be paid is the week ending July 25, 2020.  For states where the week of unemployment ends on a Sunday, the last week that the extra payment is payable is the week ending July 26, 2020.

Following enactment of the CARES Act, the Department of Labor (DOL) clarified that only if an individual is eligible to actually receive at least a nominal amount (even just $1) of regular UC benefits for a given workweek will the individual also be eligible to receive the $600 payment, which is known as Federal Pandemic Unemployment Compensation (FPUC).  The DOL clarified that this is true even if underlying benefits are garnished (FPUC payments are subject to child support obligations).

Short-Time Compensation (STC), which is the federal term for Work Share programs, is one of the qualifying types of UC benefits pursuant to which an employee may receive FPUC.  This means that employees participating in Work Share are eligible to receive the additional $600 per week, as are employees whose work schedules have been reduced so long as they are also eligible for some amount of UC.  If an employee’s earnings for the week exceed the WBA, however, then the employee will not be eligible for any UC benefits for that week and consequently, will not receive the $600 FPUC.

Here’s how differently this could play out for the employees in the examples above:

Conclusion

Hours reductions can significantly affect the amount of weekly benefits, particularly through the end of July when the FPUC is set to expire.  Employers should pay close attention when reducing hours if they want to maximize the amount of benefits their employee can recover and avoid a situation where an employee ends up with reduced wages and an inability to supplement those wages with additional unemployment benefits.