Making Up Salary Shortfalls through Work Share

March 5, 2013

With economic recovery proceeding at a sluggish pace, many companies are operating on razor thin margins that can be easily disrupted. For instance, business got so slow at the plastics company Saint-Gobain last fall that executives cut worker hours by 40 percent. Although this type of story has become all too common since 2008, a federal government-funded work share program ensured the company’s staff didn’t lose their entire income. Thanks to the additional funds, Saint-Gobain’s employees recouped 70 percent of their lost salaries and subsequently stayed with the company through the tough times.

The money Saint-Gobain received acts as a sort of unemployment insurance in reverse. Instead of supporting employees after they’ve been laid off, these free federal dollars help to keep workers with the company. After all, the expense of hiring and training new employees can be overwhelming, especially for companies that are already finding it difficult to remain solvent. The work share program, which is active in more than two-dozen states, also aids cash-strapped state governments that have seen their unemployment trusts cleaned out by the recession. In fact, last year 21 states borrowed a total of $28 billion to keep their unemployment programs going. Work share allows these embattled states some breathing room while they find more cash.

The federal government provided these work share funds as a result of last year’s Middle Class Tax Relief and Job Creation Act. In order to qualify for assistance, employers must continue to fund all current employees’ benefits, including health care. Additionally, companies are not allowed to cut worker hours by more than 60 percent. And although employers can ostensibly remain on the program as long as money is available, most states plan to impose higher unemployment tax rates on those who milk the system too much. Ideally, the government intends for work share to act as a short-term fix for companies like Saint-Gobain that experience an unusual drop in sales. For businesses with deeper dysfunctions, however, work share will only delay the inevitable.

 

Questions:

  1. What key benefits do businesses gain from the federal work share program?
  1. What’s the primary objective of the government’s work share program?

 

Source: Lorraine Woellert, “U.S. Work Share Program Helps Entrepreneurs Avoid Layoffs,” Bloomberg BusinessWeek, January 24, 2013.

 

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