Cutting Back without Laying Off

The current dismal economic climate is forcing many employers to reduce payroll. However, especially in a small business, losing valuable staff can be as costly as keeping them on. When you need to be lean, mean, and efficient, you need your experienced workers. Even more, when the economy turns around—and it will—you are going to need these folks even more. The opportunity cost of not having them in house could be huge.

Fortunately, California has a program, through the Unemployment Insurance (UI) Division of the Employment Development Department (EDD) that can help you retain valuable staff during a downturn. The program is called Work Sharing, and it provides partial unemployment insurance payments to staff working reduced hours. In order to qualify, you need to reduce at least 10 percent of your staff (this can be the staff of one or more departments or divisions, or your total workforce) at least 10 percent time. So if you have 30 employees, and reduce just three of them to 90 percent time, you can qualify. Those three employees will receive weekly UI payments that equal 10 percent of their maximum weekly benefit. If they are reduced to 80 percent time, they receive 20 percent of the UI benefit, etc.

This program is a win-win-win situation. The employee wins because a) in this economy even part of a job is better than no job, and b) partial UI, while not exactly income replacement, is better than nothing. The employer wins because he or she is able to retain valuable skills in house with the flexibility of paying them for as much or as little work is available. When business improves, you simply bring everyone back up to full time, which can be done instantly, rather than having to re-hire laid-off workers (who may have gotten other jobs in the meantime) or hire new staff. Finally, the state benefits because it is paying only partial, rather than full, unemployment. It is also not having to utilize scarce workforce development and other resources to find employment for or retrain a displaced worker. And, of course, the state is still receiving employment and income taxes from a productive worker. Although it is harder to gauge, there is also a morale component: staff morale doesn’t take the hit it does when you have layoffs, and employees get the message that they are valued and you don’t want to lose them.

My firm, Berkeley Policy Associates (an employee-owned small business), has used this program several times in the past 10 years to cope with cyclical downturns, so I am speaking (or writing) from experience. Work Sharing easy to apply for, and is extraordinarily flexible. Once an employee has filed, the percent time the individual works can fluctuate between zero and 100 percent from week to week, with the benefit rising or falling accordingly. The employer is not locked in to a specific percent time, and can deploy staff based on the demands of the business, rather than of the program. As I noted, the program can be applied to all or part of the workforce. The program is approved for six months at a time, and if you are back to full strength before the end of a six-month period, you are not required to continue reducing staff time until the end of the period. There is a small administrative burden (which has fallen exclusively on me when my firm has used Work Sharing), but I feel that it is reasonable and is more than compensated for by the benefits to the employer and employee.

If you are looking at reducing your workforce, and think that spreading the reduction among a larger number of staff by reducing their percent time (rather than simply laying off “whole” people) might work in your business, I encourage you to contact EDD about this program. Reducing eight staff from 100 to 90 percent, or four staff from 100 to 80 percent will reduce your payroll by about the same amount as laying off one person. It will win you the flexibility to operate your business effectively in a difficult environment, the ability to take immediate advantage of any improvement in the economy, and last, but certainly not least, the good will of your valuable employees which is, as the advertisement says, “Priceless!”

For information about the Work Sharing program, please visit http://www.edd.ca.gov/Unemployment/Work_Sharing_Claims.htm