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To lay off or not to lay off?

January 1st, 2010 / By: / Management

The Shared Work program can help answer the question of how to keep employees while reducing labor costs.

Anyone who’s been laid off from a job knows that the experience is usually accompanied by emotional and financial hardships. And anyone who’s had to lay off a valued employee knows that good employees are hard to find—and that by the time profits are back up, that good employee will likely have been snatched up by another company. As the economy continues its slow climb up from recession, it’s good to know there are other options available.

Shared Work defined

One such alternative for U.S. employers is the Shared Work program—a federal-state partnership that exists under part of the Unemployment Insurance (UI) program. Currently available in 17 states, the program provides the option to choose to divide available hours among employees instead of implementing a full layoff. Affected employees receive partial UI benefits while working reduced hours. The process requires some extra administrative time, efforts to educate employees on the procedures and benefits, and some sacrifice on the part of both employer and employee. But since it can mean the difference between keeping employees and having to let them go because of a temporary decrease in production, the Shared Work program may be just the option your company needs to weather the economic storm with your workforce intact.

How to participate

This is how it works: A company that needs to decrease its payroll by 20 percent could retain its total workforce by implementing a four-day work week, reducing hours from 40 to 32 hours per week for selected employees. Participating employees would receive a partial UI payment—equal to 20 percent of their individual weekly UI award—along with income earned for the week from their company. The bottom line for enrolled employees is that he or she experiences roughly a 5 percent decrease in total income, with a 20 percent decrease in hours worked. Based on those numbers, state UI pays approximately half of the employees’ lost wages, with the other 25 percent made up of a decrease in income tax and an added contribution from federal stimulus money.

Under the American Recovery and Reinvestment Act of 2009, federal money was contributed to the participants of the Shared Work program, which the employee received in the form of a weekly check from the federal government (in addition to the state unemployment check). New benefit accounts established after December 26, 2009, will not be eligible for the federal supplement under current law. If an account was established prior to that date, the applicant will receive the supplement to weekly benefit payments on that account through June 26, 2010.

The program details vary slightly from state to state, but essentially the programs offer the same benefits. For companies in Minnesota to qualify, for example, employers need to specify five or more employees whose regular, full-time hours will be reduced by at least 20 percent, but no more than 25 percent. For companies in Connecticut, employers need to specify at least four full-time employees, with hours reduced by at least 20 percent, but no more than 60 percent. (To find out if your state is participating in the program, visit your state’s Department of Labor website.)

The Industrial Fabrics Association International (IFAI) in Roseville, Minn., participated in the program for three months (summer) in 2009, which resulted in substantial savings to the organization without having to implement layoffs. “We did it to save jobs,” says Pam Egan-Blahna, human resources director for IFAI. “We were faced with needing to cut costs, which would have resulted in layoffs and cutting services. [By participating in the Shared Work program] we shared in the impact.”

Administrative time

Participating in the program does require significant time and effort on the part of the employer—especially when enrolling employees. “To be honest, it was an administrative nightmare,” Egan-Blahna says. “The state infrastructure was not prepared, so we had to do a lot of research and ask a lot of questions. It was worth it, though; we saved a lot of money.”

She suggests taking the time to educate yourself on the process and its variables by reading everything on your state’s UI site and then asking questions. “Definitely make friends with your state unemployment officials,” she says. “We called and e-mailed tons of questions and because we’d built a relationship with them, we’d get a prompt response.”

Educating employees

Once Egan-Blahna and her staff had educated themselves on the process, they introduced it to the employees, who, at first, were less than receptive. “No matter how well you try to communicate the benefits, it’s natural to be suspicious of a change like this,” she says. “But the employees ended up loving it.” It’s important for employees to know specifically how the program will affect their income and how it will affect their responsibilities at work.

Learning how to log on to the state UI website, file the initial claim and enter hours worked is also an important part of the training, since both employer and employee are responsible for tracking weekly participation.

Costs and benefits

The benefits of participating in the Shared Work program are significant: avoiding layoffs, reducing company expenses while preserving employee income, and a little extra time off for employees. But there is a cost. In addition to the administrative time needed to track with UI offices, work scheduling can be more difficult, and senior employees with higher wages will experience a larger percentage of lost income.

For the employer, Shared Work will increase tax costs. If you are a taxpaying employer, your UI tax rate will increase for the next four years, as benefits paid out will be charged to your employer account. Reimbursing employers will be billed for benefits paid to employees.

If you’re lucky enough to conduct business in a state that offers the Shared Work program, it can be an effective way to maintain the continuity of your skilled workforce during a downturn in your business’ production. If your state doesn’t offer the program, this may be a good time to contact your U.S. senator to encourage him or her to draft legislation outlining a plan to implement the program. Most experts are predicting that unemployment is going to continue to be a factor in this economic recovery for at least one or two years more.

Sigrid Tornquist is a freelance writer and editor based in St. Paul, Minn.

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