For Michigan companies scaling back but not completely shutting down as the state tightens restrictions to stop the spread of the coronavirus, a little-used program is drawing new attention as an alternative to layoffs.
Michigan’s voluntary Work Share program, overseen by the Unemployment Insurance Agency, avoids layoffs by reducing hours across more employees. Instead of some being fully unemployed while others maintain full employment, more workers qualify for a percentage of unemployment benefits based on their reduction in hours.
In the unique circumstances brought on by the coronavirus, in which businesses have been ordered to shut down for a certain time period, work sharing can be beneficial by keeping trained workers on staff without having to go through a new round of hiring.
“It’s potentially beneficial to both workers and businesses when the downturn is expected to be temporary,” said Susan Houseman, vice president and director of research at the Kalamazoo-based W.E. Upjohn Institute for Employment Research.
“In many ways, this is an ideal downturn to use work sharing — we don’t think there’s a great need for restructuring the economy,” Houseman said. “In those circumstances, it’s really beneficial if possible to maintain those employment relationships.”
Work sharing, or “short-time compensation,” also allows employees to maintain health insurance benefits. Research has shown that fully severing the employment tie increases the likelihood of “persistent adverse effects to their employment and earnings for many years,” Houseman said.
Michigan employers’ participation in work sharing, however, has been paltry. Prior to the coronavirus-related closures this month, fewer than 60 companies in Michigan participated out of about 220,000 companies that pay unemployment insurance, according to state officials. Employers must work with the state to establish a work-sharing plan.
But interest has spiked since Gov. Gretchen Whitmer ordered bars and restaurants to close (except for takeout and delivery) and as manufacturers have had to scale back, according to Unemployment Insurance Agency officials.
“It went from cold to completely hot within a matter of a week,” said Darryl Hunter, director of the UIA’s Tax and Employer Services. “Our lines are flooded.”
Whitmer’s March 16 order that expanded unemployment benefits also increased access to the state’s work sharing program by waiving until April 14 a requirement that employers must have a positive reserve in their unemployment insurance account to participate. As of press time, Congress was also considering a stimulus package that included additional federal funding for state work-sharing programs, covering the costs to employers.
“If you do that, it’ll potentially be very attractive to employers,” Houseman said.
Lack of awareness
Work-sharing programs date back to the late 1970s, with the first in California in 1978. Arizona and Oregon followed in 1982.
“Each recession we had, more states got interested and passed more programs,” Houseman said.
Congress promoted more statewide adoption of work-sharing through the Middle Class Tax Relief and Job Creation Act of 2012, which provided reimbursement to states for three and a half years and gave grants to start or expand programs.
According to a 2016 U.S. Department of Labor report, short-time compensation programs saved about 570,000 U.S. jobs since the beginning of the Great Recession. Twenty-six states covering about 70 percent of the workforce have work-sharing programs, and Michigan was one of seven to adopt its program after the 2012 legislation.
However, the programs are not widely used.
Houseman said this is due to three factors: Most businesses “simply don’t know about it;” some “legal limbo” exists between state and federal unemployment systems; and there’s occasional “administrative burden” for unemployment agencies to process more claims from a single company. Also, work-sharing is used less when the labor market is strong.
“Surveys showed very low awareness about it,” Houseman said. “But businesses in many cases would benefit from using the program.”
Houseman has researched work-sharing programs in Oregon and Iowa, finding even “simple messaging” to employers raised awareness “quite dramatically.”
Andy Johnston, vice president of government and corporate affairs with the Grand Rapids Area Chamber of Commerce, said Michigan’s program isn’t more widely used because of the recently strong labor market here.
“With such low unemployment, this hasn’t been a program that’s utilized very much,” he said. “The fact that (the state) is bringing attention to it is great.”
Johnston said the Grand Rapids Chamber in general is hearing more from employers about their first dealings with the unemployment system. Michigan unemployment claims grew sharply over the past two weeks, reaching more than 80,000 in the first week of widespread closures.
Michigan’s Work Share program is somewhat limited, though, as employees must work at least 30 hours a week to qualify for unemployment insurance benefits.
For at least one West Michigan company, work sharing has benefitted both employers and employees. Spring Lake-based office furniture manufacturer Interior Concepts Corp. started work sharing in early February. Amid a drop in production, the company reduced its work hours by 40 percent, said human resources manager Katie McCool.
The reduction was spread among three-day-a-week shifts for all 19 of its hourly production employees, avoiding the need for layoffs.
“It keeps people working, it keeps them engaged,” McCool said. “You don’t have to worry about losing any of your core employees and don’t have to rehire and retrain.”
McCool said the process for employees was “as simple as setting up direct deposit.” The company runs the administrative piece which operates similar to payroll.
Before having to idle all operations after Whitmer’s March 23 stay-home order, Interior Concepts was planning to use work share on a month-to-month basis and evaluate it based on needs. But the benefits of the program included being able to draw less from unemployment reserves while also keeping more people on the payroll.
“I see it as a win-win for employers and employees,” McCool said. “It helped us out immensely when we were slow to keep people working and their skill sets sharp so they know how to do everything when we pick back up again.”