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Layoff Alternatives During COVID-19

COVID-19 is hitting small businesses hard and many are contemplating employee layoffs to make it through the downturn. However, your state’s unemployment division may offer something called a Shared Work Program. (Some states call it Short-Time Compensation.)

Basically, Shared Work Programs were created to prevent employers from laying off employees, when they might be able to just reduce their hours, and thus their pay. So the employee doesn’t suffer the full effect of the reduction, the state unemployment division gives them some portion of their unemployment benefits to compensate.

I’ll use Texas as an example. From a review of other states’ websites, most states operate very similarly.

  1. You, the employer, must apply for a Shared Work Program and receive approval.
  2. The reduction of hours must be between 10% and 40%.
  3. It must affect 10% of your workforce.
  4. You must continue to provide any fringe benefits you already provide employees, such as health insurance, vacation time, and retirement benefits.
  5. You may start and stop the Shared Work Plan as needed. For example, if you need employees full-time for two weeks, you can do so and then go back to the reduced hours.
  6. Employees receive an unemployment benefit equal to a percentage of hours reduced. For example, if hours are reduced by 20%, the employee’s unemployment benefit will be the normal benefit times 20%.
  7. Employees are exempt from any work search requirements.

As an example, if you have an employee that earns $45,000 a year, their weekly pay would be $865 for a full 40-hour week. Under Texas’s unemployment plan, if laid off, they would be eligible for a benefit of $450 a week.

If you reduce your employee’s hours by 40% (to 24 hours a week), you would now be paying them $519 a week, a 40% reduction in your wage costs.

However, the employee would receive 40% of their $450 unemployment benefit or $180, giving them a total weekly pay of $699. Therefore, the employee only received a 19% pay cut.

Find Shared Work Program Resources

So, as you navigate the crazy waters of COVID-19, remember you have some options as it relates to helping your employees and reducing your expenses.

For states that offer a shared work program, here is a link to their page for more information.

It’s not easy managing a downturn and keeping your employees, but this might provide a good alternative to potentially losing those employees to other opportunities when the economy improves.