Short-Term Compensation

The Problem

When business activity declines, employers stay afloat by reducing the number of staff, number of work hours, or both. Layoffs allow businesses to preserve cash when there is less work or no work available, but they result in workers being severed from their jobs and employers getting a worse unemployment rating. Furthermore, workers’ skills may erode during a layoff, causing business productivity to slow down when workers are re-hired.

The State Solution: Adopt Short-Time Compensation (STC)

Short-time compensation is an unemployment insurance program that gives employers and workers optional flexibility during times of reduced work. Also known as workshare or short-work, STC allows an employer to reduce hours in variable ways across employees, as best suits the business. STC programs give employers an alternative to simply laying off workers and cushion the financial hardship workers experience during times of decreased work.

For example, consider a business with 10 workers that needs to cut payroll by 30 percent. The business could do so by laying off three workers and retaining the other seven at full-time status. The three laid-off workers would go onto unemployment insurance.

STC would allow the employer to reduce hours by 30 percent for all workers, and these 10 workers would be eligible for 30 percent pro-rated unemployment insurance benefits while maintaining 70 percent of their work hours.

Why This Matters

The pandemic recession has not only caused high unemployment, but it has also triggered labor shifts between sectors and prolonged worker displacement. Short-time compensation is an important policy tool to keep employees and employers connected during times of economic downturn.

States Currently Implementing Short-Time Compensation

Twenty-seven out of 50 states have STC programs.

What States Can Do Next

The following 23 states do not have STC programs but can create one by passing a new bill into law: 

A short-time compensation bill would create a new option for employers and employees. Employers then need to set up an STC plan with the approved state workforce agency. Workforce agencies should set up this program and approve employer applications expeditiously.

Additional Resources

• Facts Sheet: Short-Time Compensation (United States Department of Labor)
• Resources: Work Share Programs (National Conference of State Legislatures)