Personal Finance

This is a lucrative — but little-used — unemployment benefit: 'It's a complete windfall'

Key Points
  • The federal CARES Act, which enhanced unemployment benefits, made work-sharing programs attractive for many workers and businesses. 
  • The programs help businesses avoid laying off workers, and allow employees to potentially make more money than their typical paycheck or standard unemployment benefits — and for less work. 
  • Less than 1% of the 31 million Americans collecting unemployment benefits as of May 9 were doing so through work-sharing programs. 
A woman passes a hair salon ready to reopen in Arlington, Virginia, on May 28.
Olivier Douliery/AFP via Getty Images

The federal expansion of jobless benefits has made one part of the unemployment system especially lucrative for both workers and business.

But many aren't taking advantage.

The niche in question — work-sharing programs, also known as shared-work or short-time compensation programs — offers a way for financially stressed businesses to avoid laying off workers. These workers stand to get a financial benefit.

Here's how it works: A business reduces hours for all or a segment of its staff. Workers get a pro-rated unemployment benefit from the state as a way to recoup lost wages, plus the enhanced benefit the federal government is paying through July.

Work-sharing programs make sense for many businesses amid the coronavirus pandemic, especially as states begin to reopen their economies in phases and businesses may not be able to restart at full capacity, economists said.

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The CARES Act, the $2.2 trillion coronavirus relief law enacted in March, provides an additional incentive.

Workers participating in work-sharing programs would get the $600-a-week unemployment enhancement created by the CARES Act, in addition to their reduced wages and pro-rated state unemployment benefit.

The arrangement can be more profitable for many workers compared with their regular paychecks or traditional unemployment checks, according to economists. The programs may also help usher in a speedier economic recovery since they could help businesses ramp up activity more quickly once conditions improve, they said. 

Here's an example provided by Michigan's state workforce agency:

A manufacturer laid off 100 workers as a result of Covid-19. Employees made $1,000 a week pre-pandemic. The business wants to restart operations but bring them back at 70% capacity.

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This would reduce their salaries to $700 a week. They would also get about $108 in state unemployment benefits (which is 30% of the standard state benefit) plus the $600-a-week unemployment enhancement from the Cares Act.

The employees would get $1,408 a week under the work-sharing program, which is more than their typical paycheck ($1,000) and full unemployment ($962 in state and federal benefits).

"This is a complete windfall," said Lowell Taylor, a professor of economics and public policy at Carnegie Mellon University.

"Over the next few months, you can see why work-sharing does make some sense," he said.

However, the program appears to be little used.

It's the $600 from the federal government that makes the whole thing hum.
Lowell Taylor
professor of economics and public policy at Carnegie Mellon University

Less than 1% — about 179,000 people — of the 31 million Americans collecting unemployment benefits are doing so through work-sharing programs, according to U.S. Department of Labor data as of May 9.

"It really hasn't taken root yet," Taylor said.

That could be for several reasons. For one, just 26 states have operational programs in place, according to the DOL.

(Those states are: Arizona, Arkansas, California, Colorado, Connecticut, Florida, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington and Wisconsin.)

Plus, many employers likely don't know these programs exist, Taylor said.

And there's a caveat: The $600-a-week unemployment enhancement is scheduled to end July 31, absent an extension from Congress, which appears unlikely.

"It's the $600 from the federal government that makes the whole thing hum," Taylor said.

However, lawmakers are debating policies that could takes its place.

Employers must have a work-sharing plan approved by their state workforce agency. The application process for benefits is initiated by the employer, not the employee.

And there are limits as to reductions in worker hours, which generally range from 10% to 60%.

How unemployment benefits are calculated
How unemployment benefits are calculated