Staying Connected with Your Client: Temporary Hours Reductions and the Minnesota Shared Work 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 the first items on the list of options an employer must consider when responding to changing business conditions.

Employees who are laid off permanently or furloughed 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 UC benefits.

In general, an employee in Minnesota is eligible to receive unemployment benefits equal to 50 percent of his or her average weekly wage up to a maximum of $740.¹ This is the employee’s weekly unemployment benefit amount (WBA). However, employees are not eligible for unemployment benefits in any week they work 32 or more hours, or when their gross earnings for the week are equal to or greater than their WBA. In the event of a temporary hours reduction, a partial benefit payment will be made for any week employees work less than 32 hours and their earnings are less than their WBA. The Minnesota Department of Employment and Economic Development (DEED) calculates the partial benefit payment by deducting 50 percent of employees’ earnings under the reduced schedule from their WBA. Therefore, the partial benefit payment = (WBA) - (reduced wages x 0.50).

For example, an employee, Employee A, earning $15 per hour, working 40 hours per week for the past year, earns $600 per week in wages. If laid off, Employee A would be eligible to receive roughly $300 per week in regular unemployment benefits (his WBA). In the event of a temporary hours reduction, if Employee A’s hours were temporarily reduced to 20 hours per week, he would earn $300 per week in wages and would be eligible for approximately $150 per week in unemployment ($300 WBA less 50 percent of $300 in weekly earning). Thus, for each week during the hours reduction, Employee A’s weekly compensation would be $450, a decrease of $150 per week from his full-time earnings of $600 per week.

Compare this to Employee B, who earns $40 per hour, working 40 hours per week for the past year, earning $1,600 per week in wages. Because Employee B’s WBA ($1600 x 0.50 = $800) exceeds the maximum WBA of $740, Employee B would not be eligible for any UC. Therefore, if Employee B’s hours were temporarily reduced to 20 hours per week, she would earn $800 per week in wages and this would be the extent of her available weekly compensation. This would be a decrease of $800 per week from her full-time earnings.

Shared Work Programs

Another option is a Shared Work program. Many states—27 at last count—have developed so-called Shared Work or Work Share 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 Shared Work programs are referred to as Short-Time Compensation under federal law.) The employees participating in Shared Work may then receive partial UC benefits while working reduced hours.

To be clear, the purpose of Shared Work 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. The onus is on the employer to apply with DEED for approval of a proposed Shared Work plan.² The plan must last at least two months, but not more than one year, though an employer can extend a plan up to one additional year. The plan is a binding contract between the employer and Minnesota’s Unemployment Insurance Program, and any changes in the employer’s plan require notice to and approval from DEED. Only employees who work full or part time and have worked for the employer for at least one year are eligible to be included in the plan.

DEED provides compensation to an employee whose hours have been reduced pursuant to a Shared Work program, including for employees who otherwise might not qualify for UC benefits. Therefore, unlike with a temporary hours reduction, an employee participating in Shared Work may access unemployment even if she otherwise would not qualify because her earnings exceed the WBA. Like with a temporary hours reduction, the employee must apply for unemployment insurance benefits in order to be eligible to receive partial unemployment insurance benefits while working reduced hours under a Shared Work program. The employee must be working at least 50 percent and no more than 80 percent of her normal weekly hours. (For example, if an employee normally works 40 hours per week, that employee must be working at least 20 hours but no more than 32 hours per week to qualify for a Shared Work program.) DEED has stated that in this situation, the unemployment benefit usually is about one-half of the employee’s lost income due to the reduced hours.

Using the examples above, if Employee A’s hours are reduced to 20 hours per week under a Shared Work program, he would still receive $300 per week in wages, but would also receive roughly half of his WBA of $300, or $150. Thus, Employee A would receive roughly the same amount of total weekly compensation as he would under a temporary hours reduction.

Similarly, if Employee B’s hours are reduced to 20 hours per week under a Shared Work program, she would still earn wages of $800 per week. In addition, however, she would also receive roughly half of her WBA, or $400, for a total of $1,200. This is $400 more than she would receive under a temporary hours reduction.

The Shared Work program eliminates certain limitations that prevent employees with higher wages from receiving UC benefits under a temporary hours reduction program. The result is that these employees are able to maximize their total weekly compensation, with no effect on the total weekly compensation of employees with lower wages.

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 at UPDATE: Congress Passes Coronavirus Aid, Relief, and Economic Security Act. 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 Act $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 an individual is eligible for the FPUC payment, even if underlying UC benefits are garnished (FPUC payments are also subject to child support obligations).

Short-Time Compensation, which is the federal term for state 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, as described above, are eligible to receive the additional $600 per week, as are employees whose work schedules have been temporarily reduced so long as they are also eligible for some amount of UC. If an employee is subject to a temporary hours reduction program and the employee’s wages 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 these options could play out for the employees in the examples above:

 

Employee A	Total Benefit
Normal Weekly Amount:	$600
Temporary reduced hours amount:	$450
Temporary reduced hours amount w/FPUC:	$1,050
Work Share:	$450
Work Share with FPUC:	$1,050

 

Employee B	Total Benefit
Normal Weekly Amount:	$1,600
Temporary reduced hours amount:	$800
Temporary reduced hours amount w/FPUC:	$800 (not FPUC eligible)
Work Share:	$1,200
Work Share with FPUC:	$1,800

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.

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¹ The WBA in Minnesota is the higher of (1) 50 percent of an employee’s average weekly wage during the entire base period, up to a maximum of 66.7 percent of the state’s average weekly wage, or $740, or (2) 50 percent of an employee’s average weekly wage during the highest-earning quarter of the base period up to a maximum 43 percent of the state’s average weekly wage, or $478.

² See more information, Shared Work - alternative to layoff.