Short-Time Compensation (STC) programs are getting a boost through the Coronavirus Aid, Relief, and Economic Security (CARES) Act during the time of COVID-19. These programs are designed to help businesses struggling to stay afloat avoid resorting to a layoff strategy when there is less work available. Though primarily state-sponsored, those states which have an STC program and follow certain guidelines may also be able to benefit from an infusion of funding and federal incentives provided for in the CARES Act by utilizing dollars available to through the STC’s federal Unemployment Trust Fund accounts.
For those states which already had an STC program in place before the pandemic began, the CARES Act makes federal funding available for 100% of the STC while states which are currently instituting an STC are eligible for 50% of federal funding for the STC. Grants for initiating or shoring up an existing STC program are also now accessible.
How STC Programs Work
Short-Time Compensation programs offer employers who are temporarily in a situation in which they have less work than usual coming in, a means by which they can retain their employees by reducing hours for individual work groups. Layoffs cannot be part of the equation for employers utilizing an STC program. The reduction of work hours must be implemented instead of staff layoffs. Employees who receive reduced work schedules are allowed to collect partial unemployment benefits. Unemployment compensation is prorated by using, as a basis, the amount of unemployment compensation the employee would have received if they had been laid off. STC employees are also entitled to continue to receive the full health and retirement benefits they were entitled to receive before the STC work arrangement went into effect for them.
Short-Time Compensation Program Eligibility Requirements
STC programs vary by state. In order to apply for a program, an employer must first submit a formalized plan to their state’s workforce agency and have it approved before they can begin implementing the program. Any changes that occur after the approval has been given – such as adding or eliminating participants or further adjustments to hours – will again need to be submitted to and approved by the state agency. If the employer is interested in receiving federal funding to minimize their Short-Time Compensation program expenses, they must include in their plan:
- An estimated number of layoffs that would have been necessary if the STC program hadn’t been put in place;
- Certification that those employers providing health and retirement benefits to employees under normal circumstances will continue to provide the same benefits to the same degree as they would have if participating employees had not had their hours reduced; and
- Certification that the amount of unemployment compensation received by participating employees is honored at each employee’s prorated usual unemployment compensation rate.
Currently, twenty-six states have Short-Time Compensation programs that are currently operational. These include:
In the current environment, additional states are anticipated to add Short-Time Compensation programs to the list of programs being offered to help businesses impacted by the coronavirus pandemic.
Benefits of Short-Time Compensation Program Participation
Both employees and employers stand to gain by their participation in STC programs. Employees retain their jobs, continue to collect the same benefits they had always been entitled to, and retain a good deal of their salaries through a combination of continued (though reduced) company pay and the prorated unemployment compensation. Employers avoid the future costs associated with replacing and training new hires by retaining their already-trained, experienced workers while the business continues to operate as seamlessly as possible.
While Short-Time Compensation programs are beneficial to businesses that need to make adjustments due to a decrease in workflow, they do carry some drawbacks with them, especially for those employers who have employees in multiple states. Because each state has different requirements for their STC programs, keeping track of the employees working in each state, each state’s STC requirements, and how those requirements impact employees can quickly become an administrative headache. Additionally, many states do not allow employers to hire new employees for any workgroup that is operating under an STC program. Finally, the employer’s state unemployment insurance tax rate could change as a result of their participation in an STC program.
If you have questions about Short-Time Compensation programs and the benefits of participating in one, please contact your Untracht Early advisor.