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Grocery store employee standing in the freezed food sectionThe Coronavirus Aid, Relief and Economic Security (CARES) Act offers financial relief for Americans who have been laid off or have had their hours cut as a result of the COVID-19 outbreak. One provision of the act funds the benefits of short-time compensation (STC) programs at the state level. The programs, also known as work-sharing programs, are designed to help employers avoid layoffs whenever possible. The CARES Act also funds the creation of such a program for states that don’t have them and provides grants to cover the administrative costs of creating such a program.

Short-Time Compensation Program Overview

Under the CARES Act, the federal government will reimburse a state for all STC benefit costs, up to a maximum of 26 weeks for each state. The act also provides states that do not have an STC program with funds to cover 50 percent of the cost of temporarily implementing an STC program for up to 26 weeks. States that implement an STC program may also apply for a grant to cover administrative costs.

The purpose of STC programs is to help employers reduce staff hours rather than lay off workers, while allowing those workers to become eligible for partial unemployment benefits. The goal of these programs is to keep employees on the job and reduce unemployment, while also providing them with compensation to make up for a reduction in hours.

That benefits employees, but STC programs can also be good for businesses. Since the business is keeping its staff and cutting back hours instead of laying them off, there’s no need to go through the rehiring process or spend money training new employees to replace them. States that run STC programs also benefit since they’re paying partial unemployment benefits rather than full unemployment to workers.

How Much Do Short-Time Compensation Programs Pay?

The formula for calculating how much an employee is eligible to receive in partial unemployment benefits is fairly straightforward. Employees would generally qualify to receive a percentage of unemployment benefits, which are deposited in an employee’s bank account, that corresponds to the percentage by which their working hours were cut.

So if you had your hours cut by 25%, you’d be eligible to receive 25% of the full weekly unemployment benefit amount in your state. You may not necessarily receive exactly what you were making in your regular paychecks, based on your state’s maximum unemployment benefit. But receiving these benefits could help you to manage your bills and stay afloat until you’re able to return to work full time.

Any benefits paid from short-time compensation programs are considered taxable income. That means if you claim benefits through your state’s program this year, you’ll get a Form 1099 next year that you’ll need to report as income on your taxes.

States Offering Short-Time Compensation Programs

Sign saying "Part Time WORK" The effects of the pandemic vary by state and industry, and many states, including New York and California, have a range of resources for residents. STC programs are one of the more common state benefits: More than half the states in the U.S. have work-sharing programs. The CARES Act provides federal funding for these programs, as well as offering grants and other incentives to encourage states that don’t have an STC program to start one.

These states have operational STC programs for eligible workers:

  • 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
  • Wisconsin

Virginia recently repealed its STC program.

Who’s Eligible for Work-Sharing Benefits?

There are a few conditions workers must meet to qualify for benefits from a short-time compensation program.

First, the employer must have an approved short-term compensation plan through the state department of labor. Every state has different guidelines for employers. In New York, for example, businesses are eligible for work-sharing plans if they have at least two employees working in the state and have paid unemployment insurance for at least four consecutive calendar quarters prior to applying.

There may also be other requirements that a proposed plan needs to meet, depending on the state. Using New York as an example again, plans can only apply to employees who normally work no more than 40 hours a week and employers can’t eliminate or reduce fringe benefits. The state may also specify by what percentage an employee’s hours need to be cut under the plan.

As an employee, you need to be eligible for normal unemployment benefits to qualify for short-time compensation. To apply for short-time compensation, you would apply for unemployment benefits through your state, either online or by phone, depending on what your state specifies.

Just like regular unemployment, there may be a mandatory waiting period before you can begin receiving short-time compensation benefits. One difference, however, is that you don’t have to look for work or file a weekly report stating that you’ve been looking for work the way you would with regular unemployment benefits.

Planning Your Financial Strategy With Reduced Hours

Scissors cutting paper with the words "Full-Time Job" on it Short-time compensation benefits can help if you’ve had your hours cut but you may need to look at your bigger financial picture if coronavirus has significantly affected your income.

First, review your budget to see if there are any expenses you can reduce or eliminate. The goal is to get your monthly spending as low as possible if you’re not making as much money as a typical month.

Next, consider what other state or federal financial benefits you might qualify for that could provide relief. If you own a home, for instance, you may be able to temporarily defer mortgage payments. Or if you owe federal student loans, you can get some relief from making payments until work picks up again.

You may also consider supplementing your income from work and short-time compensation with some type of side hustle or business that you can do online. Keep in mind that just like short-time compensation, this income also needs to be reported on your taxes.

The Bottom Line

STC programs can help employers maintain their staff, albeit at reduced hours, and allow employees to keep their jobs during hard financial times. These programs aren’t designed to replace 100% of an employee’s lost income, but they can help if your hours are cut. And if you’re laid off completely, you’ll want to consider other CARES Act relief options, such as the Federal Pandemic Unemployment Compensation program and the Pandemic Unemployment Assistance Program.

Tips for Investing

  • A financial advisor can help you build a financial plan that meets your needs even during an economic downturn. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
  • If you’re receiving a stimulus check as part of federal COVID-19 relief measures, consider carefully how to spend your stimulus money. You could also consider using the money to invest, but you may want to keep your risk tolerance and financial needs in mind before making a decision. The CARES Act is the linchpin of the government’s coronavirus relief programs, but there are other state and federal changes you should know about, including a tax deadline extension.

Photo credit: ©iStock.com/kali9, ©iStock.com/tumsasedgars, ©iStock.com/AndreyPopov

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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