2015 STC Summit How the Middle Class Tax Relief & Job Creation Act of 2012 Changed STC Suzanne Simonetta Chief, Division of Legislation Office of Unemployment Insurance, ETA/DOL

2015 STC Summit Short-Time Compensation (STC) Preserves employees’ jobs & employers’ trained workforce during disruptions to a firm’s regular business activity Hours of work for an entire group of affected employees are reduced rather than some employees being laid off while others continue to work regular hours Enables individuals whose hours have been reduced to get a partial UI payment 2

2015 STC Summit STC is a Win-Win For Employers – Retains trained and experienced workers who will be immediately available when demand for their services increases – Temporarily reduces labor costs For Workers – Provides economic stability by enabling them to maintain their jobs/skills while experiencing a smaller cut to their weekly income – Sustains employee morale 3

2015 STC Summit STC in “Middle Class Tax Act” New definition of STC in §3306(v), FUTA 100% Federal reimbursement of certain state STC benefit costs for 3 years– Expired – Reimbursement of $266.7M to 22 states About $100 million in grants to states for implementation or improved administration of, and promotion & enrollment in STC – Expired – Grants to 16 states for $46.154M Authorizes states to operate a Federal STC program for 2 years – Expired 4

2015 STC Summit Old Definition of STC A.For UC-eligible individuals whose workweeks have been reduced by ≥ 10% B.UC payable is pro-rata portion of UC payable if individual were totally unemployed C.Employees not required to be A & A or search for work to be eligible– just available for normal workweek D.Employees may participate in employer- sponsored training approved by state agency E.Reduction in hours worked in lieu of temporary layoffs 5

2015 STC Summit Why Definition Had to Change § 3306(h), FUTA: compensation “means cash benefits payable to individuals with respect to their unemployment” §3304(a)(4), FUTA, & §303(a)(5), SSA, limit use of state unemployment trust funds to payment of compensation STC, as defined in Federal law, is one of the few statutory exceptions to limitation Any deviation from statutory exceptions would violate the “withdrawal standard” 6

2015 STC Summit STC Definition: §3306(v), FUTA 1.Employer participation is voluntary 2.Employer reduces employee hours in lieu of layoffs 3.Reduction is at least 10% and not more than 60% & employees not disqualified for UI 4.Employees receive pro-rata share of benefits they would have received if totally unemployed 5.Employees meet work availability and work search requirements by being available for their workweek as required by the State agency 6.Eligible employees may participate in training, either employer-sponsored or funded under the WIA if approved by State agency. 7

2015 STC Summit STC Definition: §3306(v), FUTA 7.Requires employers to continue to provide health and retirement benefits. 8.State agencies shall require the employer to submit a written plan describing how the requirements of 3306(v), FUTA, will be implemented (including a plan for providing advance notice where feasible), with an estimate of the number of layoffs that would have occurred. 9.Plan must be consistent with employer obligations under applicable Federal and State laws. 10.Upon approval by the Secretary, only such other provisions of State law that are determined appropriate for purposes of STC. 8

2015 STC Summit Conformity with §3306(v), FUTA STC states had 2 ½ years to bring their laws into conformity with new definition (until 8/22/14) 28 states have conforming STC provisions in their laws 21 states amended their existing STC provisions to conform to the new definition 2 states repealed the STC provisions in their laws 7 states enacted laws to establish new STC programs 9

2015 STC Summit §3306(v)(10), FUTA: Optional STC Requirements Permitted Provides flexibility for states to establish additional program parameters without violating withdrawal standard. Includes: – Policy issues about which there isn’t national consensus – New ideas to be tested Necessitated legal analysis about scope of Secretary of Labor’s authority Resulted in robust debate about competing policy objectives 10

2015 STC Summit Preapproved Provisions in UIPL Collective bargaining representative must agree to STC plan. 2.Employer must assure no new hires in affected unit during term of plan. Why would states want to do this? Why wouldn’t such a provision be desirable? Why were these provisions approved? 11

2015 STC Summit Preapproved Provisions in UIPL Limitation on tenure of workers in STC plan 4.STC plan must avoid layoff of certain minimum percentage of workers 5.Prohibit participation by employers who are delinquent in paying contributions, penalties, or interest Why would states want to do this? Why wouldn’t such a provision be desirable? Why were these provisions approved? 12

2015 STC Summit Preapproved Provisions in UIPL 22-12, Change 2 1.Provisions excluding certain employers from participating in an STC program: – Employers with negative unemployment experience; – Maximum-rated employers; and/or – Employers subject to new employer rate Why would states want to do this? Why wouldn’t such a provision be desirable? Why were these provisions approved? 13

2015 STC Summit Preapproved Provisions in UIPL 22-12, Change 2 2.Assess a surcharge on certain employers who participate in STC: – Employers with negative unemployment experience; – Maximum-rated employers; and/or – Employers subject to new employer rate Why would states want to do this? Why wouldn’t such a provision be desirable? Why were these provisions approved? 14

2015 STC Summit Preapproved Provisions in UIPL 22-12, Change 2 3.Limit amount of time workers in affected unit may be subject to an STC plan 4.Limit STC participation if employer recently reduced its workforce by specified percentage during specified period of time Why would states want to do this? Why wouldn’t such a provision be desirable? Why were these provisions approved? 15

2015 STC Summit Preapproved Provisions in UIPL 22-12, Change 2 5.Require employers to specify whether plan is a transition to permanent layoffs 6.Prohibit employees receiving supplemental unemployment benefits from participating in STC 7.Relieving employers of charges for STC paid to individuals participating in approved training Why would states want to do this? Why wouldn’t such a provision be desirable? Why were these provisions approved? 16

2015 STC Summit Impermissible Provisions Different charging/reimbursing methodology for STC and UC payments §3303(a)(1), FUTA, as interpreted by UIPL requires states to use a “uniform method” of measuring employers’ “experience with respect to unemployment or other factors bearing a direct relation to unemployment risk”. 17

2015 STC Summit Impermissible Provisions Requiring “negatively rated” employers that participate in STC to reimburse STC benefit costs §3304(a)(6)(B), FUTA, only permits optional reimbursement of benefit costs by state or local governmental entities, certain non-profit organizations, or federally recognized Indian tribes. 18

2015 STC Summit New STC Definition: Did They Get It Right? While much of STC definition in §3306(v)(1)-(9), FUTA, & approvals under (10) are quite similar to what states had in their statutes previously, there are some significant differences. If your state has STC, what’s worked out well? What hasn’t been as successful? If your state does not yet have STC, how, if at all, do these changes affect the likelihood of you getting an STC program? 19

2015 STC Summit Major Policy Considerations Perceptions about “gaming” system might make it harder to get STC enacted into law Increased employer cost of using program may result in lower participation rates Greater flexibility & options to customize STC plan to meet individual employers’ changing needs may be more difficult to administer Excess concern about administrative burden of STC program could result in lost opportunity to reduce unemployment & to help individuals stay job attached 20

2015 STC Summit STC in “Middle Class Tax Act” a Success? More states are operating STC programs Increased employer knowledge about STC expected to increase its use when need arises Additional states are exploring possibility of creating new STC programs 21

2015 STC Summit 22 Jobs Saved by Work Sharing 1 - Recently created programs no data for some years. 2 - Reflects claims filed after enactment of MCTRJCA 3 - Reflects claims filed through August 22, Reflects claims filed through November 7, 2015 Note: This data represents work share equivalent initial claims (WSEIC), which makes the data comparable to regular unemployment insurance initial claims. For example, 5 people applying for work share whose hours are reduced by 20 percent would be reported as 1 for WSEIC. Source: Employment & Training Administration, U.S. Department of Labor

2015 STC Summit What Else Were States Doing From ? EUC and EB extensions and modifications New EUC requirements – REAs, work search, etc. Sequestration Improper payments 23

2015 STC Summit EUC Benefit Changes 24 New EUC TiersPrior LawNew Enactment Through MayJune to AugustSept to Dec TIER I Weeks20 14 % Unemployed0000 Number of StatesALL TIER II Weeks14 % Unemployed006% Number of StatesALL 4243 TIER III Weeks13 9 % Unemployed6% 7% Number of States TIER IV Weeks616*610 % Unemployed8.5% 9% Number of States Based on Trigger Rates as of:Feb 26, 2012May 27, 2012Aug. 26, 2012Sept. 30, 2012 *Tier IV: 16 weeks available if not on EB. Six weeks available if on EB.

2015 STC Summit Planning for the Future STC is of particular importance during recessionary times. It is essential to start preparations now so the program will be available when it is needed most. 25

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