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Considering WorkShare Unemployment Insurance

Ginovus’ headquarters is located in Indiana, one of 18 states that does not have a WorkShare program.   This topic is being considered in the 2018 legislative session however, and because the economy is humming along pretty well, adoption of such programming may not be this year’s legislative priority.  As history reminds us, economic tides will inevitably shift and those states with economic safeguards in place (such as a WorkShare program) are likely to ride the wave a bit longer and stronger than those that do not.

WorkShare is a form of unemployment insurance, authorized by Congress 30 plus years ago.  Many states have implemented the program which permits partial unemployment compensation to be paid to workers whose working hours have been reduced below a pre-established threshold.  The program allows businesses to temporarily reduce the hours of their employees, instead of laying them off during economic downturns.  Technically referred to as short-time compensation, the goal of WorkSharing programs is to reduce unemployment which in turn should help the overall state economy.

WorkSharing, not to be confused with job-sharing, allows a full-time worker’s hours to be reduced rather than being laid off.  The program benefits businesses by allowing them to keep their trained workforce and enabling easy recall to full employment when conditions improve.  Workers benefit because they are able to keep their job at a reduced number of hours and collect some of the reduced hour pay differential through unemployment benefits.  This is a win-win-win i.e. a win for the state because it will save money by paying only partial unemployment claims as compared to paying full benefits to laid-off workers; a win for workers because they remain employed with their existing employer and can retain healthcare benefits and; a win for employers as they weather a business slowdown by reducing costs, retaining their skilled workforce and avoiding the future expense of recruiting, hiring and training new employees when the economy improves.

Consider this scenario of how a WorkShare program may work.  Due to an economic down turn, a manufacturing company faces a 20% reduction in production which ordinarily would result in a layoff of a fifth of its workforce.  A firm with a WorkShare plan in place could retain its total workforce on a reduced schedule of four days per week.  The reduction from 40 hours to 32 hours would cut production as needed without eliminating any positions.  All of the effected employees would receive their wages from the company based upon their 4 day work week and receive the portion of unemployment benefits equal to 20% of the total weekly benefits that would have been payable had the employee been unemployed a full week.

Under approved WorkShare programs, employees qualify for a percentage of unemployment benefits, equal to the percentage by which their hours have been reduced.  While this unemployment payment doesn’t fully replace lost wages, it is designed to supplement income until full employment is restored.

Below and indicated in red, are those states with WorkShare programs in place.  Since we have clients located throughout the U.S. we thought this visual may be of interest.

National Employment Law Project, Center for Law and Social Policy

As with all new program considerations and implementation, the common question is, how will it be funded?  WorkShare benefits are paid from the state Unemployment Insurance (UI) trust fund.  Most employers pay taxes based on the size of their workforce and their experience with workforce reductions over time.  Employers who have a stable workforce and who pay out fewer benefits over time, tend to have lower tax rates than those that have frequent layoffs.  WorkShare benefits are charged to employers who pay taxes or attributed to employers who reimburse the trust fund in the same manner as regular unemployment benefits.  According to a U.S. Department of Labor study, WorkShare does not appear to have any significant impact on state UI trust funds and therefore should not be a negative when considering whether or not to adopt.  Of course anytime new programs are being considered for adoption, in-depth analysis, research and discussion are fundamental to the process.  The key is to prepare for when economic conditions shift.  As well articulated by Benjamin Franklin, “By failing to prepare, you are preparing to fail”.

Meet the author

LESLIE WAGNER

SENIOR PRINCIPAL