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A Short-Term Solution for Tough Economic Times?

The Department of Labor recently awarded Ohio more than $3 million to help implement and promote the state's short-time compensation program. STC programs can benefit employers and employees, but carry additional administrative and compliance requirements that organizations and HR must consider, experts say.

Tuesday, April 29, 2014
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The U.S. Department of Labor recently announced an award of $3,714,908 to the state of Ohio, to help the Buckeye State implement and promote SharedWork Ohio, the state's short-time compensation program.

The DOL is hopeful that other states will pursue federal funds to feed similar programs while experts predict more employers across the U.S. will look to participate – with good reason.

Ohio will allocate $1,238,303 to implement a new STC program, with the remaining $2,476,605 going toward "educating the public about the advantages of incorporating an STC program and increasing enrollment of employers into the program," according to a statement issued by the Department of Labor.

Essentially, short-time compensation programs allow employers to reduce work hours for a group of employees as an alternative to layoffs during difficult economic times. With such programs, the lowered wages of workers affected by reduced hours are augmented by a percentage of the weekly unemployment compensation that would have been available to them had they been laid off entirely.

The Department of Labor did not respond to HRE's requests for comment, but, in a statement, U.S. Secretary of Labor Thomas E. Perez described short-time compensation as "an innovative solution … that helps business and employees maintain a level of economic security during difficult economic periods and use unemployment compensation to supplement their reduced wages. In the same press release, Perez also encouraged "all states to evaluate whether they can benefit from the available federal funds."

Short-time compensation programs are typically beneficial to companies as well as workers, says Kelly Hamilton, a Cleveland-based associate with Ogletree, Deakins, Nash, Smoak & Stewart.

"[Such programs] cushion the adverse effect of the reduction in business activity on workers and ensures flexibility, in that these workers will be available to resume prior employment levels when business demand increases," says Hamilton.

"Perhaps as important," she says, "is the fact that the program allows employers to keep trained workers on the job. SharedWork Ohio also allows employers to avoid the costs of traditional layoffs, where employers gradually pay 100 percent of the layoff's resulting expenses through unemployment taxes."

These programs also "help preserve institutional knowledge and provide the company with the ability to respond quickly to a return to growth by reinstituting full hours," adds Jeremy Gaylord, a senior consultant in the New York office of Towers Watson.

Given such benefits, "you can expect to see other states receive similar grants," adds Jason Rothman, a shareholder in the Cleveland office of Ogletree Deakins, noting that 26 other states and the District of Columbia already have STC programs in place.

While many may consider programs such as SharedWork Ohio a "win-win" for employers and employees alike, they do carry additional administrative and legal compliance requirements that organizations and HR must be aware of, says Rothman.

"For example," he says, "under SharedWork Ohio, there is a new requirement for employers to ‘promptly and adequately' respond to unemployment information requests from [the Ohio Department of Job and Family Services]."

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Employers who ignore these requests face consequences. For instance, an employer's account may be prevented from being mutualized or credited for improperly paid benefits, says Rothman.

"The law also provides that an employer's account cannot be mutualized or credited if an employer previously established a pattern of failing to respond timely or adequately to such a request."

Employers wishing to participate in Ohio's SharedWork program must also submit a plan to the ODJFS, which includes a description of the manner in which the employer will implement the program's requirements, as well as a proposed reduction percentage between 10 percent and 15 percent, says Hamilton. Employers in other states with STC programs may be subject to similar obligations, but "the requirements differ from state to state, and employers should coordinate with their applicable state agencies," she adds.

"The plan cannot be applied to seasonal, temporary or intermittent employees," continues Hamilton, adding that employers must also maintain healthcare benefits for workers whose hours were cut and are collecting unemployment benefits.

From a human resources standpoint, HR professionals must consider a number of factors prior to putting a STC program in place, says Gaylord.

"Before implementing such a program, HR leaders would need to know in which cases job sharing could be feasible, how to transition to and from job-sharing situations, and how to ensure continuity and accountability in situations where job sharing is implemented," he says.

"[HR] would also want to account for how long funding would be available, the nature of any restrictions on the use of the funds, and how other programs such as incentives, profit sharing and paid time-off would be affected. Beyond those things, they'd need to understand their reporting obligations as a participant in the DOL program."

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