Hidden Costs of Layoffs

What Can HR Professionals Do To Control Costs?

Here are five ways HR professionals can control their employers' costs for unemployment insurance taxes:

Severance. When you pay severance affects how long workers are eligible for unemployment insurance and affects your experience rating. Some HR departments wait until the last day to pay the severance, says Douglas Holmes, president of UWC—Strategic Services on Unemployment & Workers' Compensation. When you pay severance on the last day, the former employee can take the money, apply for unemployment insurance and get paid beginning the day he was let go. Instead, if you pay the severance in weekly amounts while the worker is still on your payroll but no longer working, he or she has that time to look for a job while still technically employed and will be on unemployment insurance that much less time, if at all.

Rolling layoffs. Consider rolling layoffs to help keep good workers linked to your company. "When you're facing layoffs, the easiest way is to take the bottom 10 percent," says Scott Hollander, senior director of human resources and quality assurance at Axion Power International. "But you can't do it forever."

With rolling layoffs, workers rotate in and out of unemployment with the expectation that they will be reinstated after a given period and replaced on unemployment insurance by another worker. There's a risk that some workers may resent the cutbacks, but if you have the right culture, most people buy in. When Axion instituted rolling layoffs, "There were some longer-serving employees who felt they should be working full time rather than three-quarter," Hollander says. "But they didn't make a stink."

Shared work. Rather than laying off a percentage of the workforce, shared work permits you to reduce hours and wages for all employees or for a particular group. They receive partial unemployment insurance benefits to supplement their lost wages. Shared work is currently available in 20 states.

Tri-Star Industries in Berlin, Conn., chose to offer shared work. "We're a machine shop with equipment that requires operators with specialized expertise," says president Andrew Nowakowski. "I didn't want to take the chance of losing a good employee to a potential competitor or have someone decide to leave the industry. Between what they received from unemployment insurance and the company, their take-home pay was about the same. We had to maintain all the full-time benefits."

Networks for referrals and leads. Shorten the time someone is on unemployment insurance. You're helping them land on their feet and holding down your company's tax burden. "Keep up with other employers who might be hiring," advises Pam Thayer, HR director at the New Buffalo Shirt Factory. "I make calls, steer them in the direction of employers who want their skill sets."

Regional HR associations often keep resume books that are circulated to members.

Government services. All states have rapid response teams poised to visit and offer services to employees targeted for layoffs. The Worker Adjustment and Retraining Notification Act requires notice of 60 days for employers with 100 or more employees. State labor officials scour media for news of layoffs by smaller employers, then contact them and offer support. Still, the services seem to be underutilized. Holmes says employers often overlook the free help.

"So many employers fail to take advantage of state job banks and other resources," says Lois Campanelli, a regional job center director at the Connecticut Department of Labor. "It would be really wonderful if HR people would get in touch with us to see what we can do for them in terms of recruitment and training."

Employers are not the only ones passing up freebies. Some job seekers bypass job search tips and advice on resume writing from public servants, instead turning to professional companies. Usually, these services are first-rate, but Anne Banaszewski, a Connecticut career development specialist, offers a caution: "Sometimes, you don't get what you pay for," she says. "You'd be surprised how often I catch errors."

Finally, although it won't generate a direct savings on taxes, be mindful of the impact unemployment of family members may have on your workers. They can be affected financially, emotionally, physically and psychologically. Alert supervisors to watch for signs of stress. Emphasize the availability of employee assistance programs.

—Robert J. Grossman

The Unemployed Play A Game of Musical Chairs

Envision a three-round game of musical chairs where employers post available jobs on vacant chairs. Participants are job seekers who receive unemployment benefits.

Round one. When the music stops, empty chairs representing available jobs are filled by applicants who match the qualifications. The problem is, there are more matches available than actually occur. Outmoded data systems and poor dissemination of information represents one reason many workers and employers don't connect, says Glenn Marshall, commissioner of the Connecticut Department of Labor. Two-thirds of the states are operating with 30- to 40-year-old legacy mainframe computer systems, according to George Wentworth, senior attorney at the National Employment Law Project in New York City.

Round two. There are still plenty of empty chairs, but when applicants hustle to fill them, the seats are too small and uncomfortable. If the jobs are similar to what they had before, the salaries and benefits may be lower. Taking the jobs may require moves that would disrupt their families. Or the jobs might be entirely different from their previous positions.

Faced with disheartening choices, some surrender to what they see as inevitable and squeeze into the smaller seats.

Others leave the chairs empty and continue to collect unemployment benefits. Critics note that the extra time spent receiving unemployment benefits—roughly two weeks—costs employers more than is necessary. They observe that since joblessness increases depression, divorce and substance abuse, and has a corrosive effect on the unemployed worker and his or her family members still at work, getting people back to work as soon as possible should be the priority. If there's a job, they argue, the person should take it.

Others say extra time spent on unemployment insurance helps people come to terms with their situations psychologically, improving the odds that they'll approach new jobs in better states of mind. "If I'm unemployed for 20 weeks as an engineer and think I could get a job as an engineer, should I keep looking or take a job I really don't want?" says Douglas Holmes, president of UWC—Strategic Services on Unemployment & Workers' Compensation. "Taking the extra two weeks may be worth it if I find a job that's a better fit."

Some contend that when benefits are extended to last as long as 99 weeks, people are encouraged to game the system, dragging out payments before seriously looking for a job. They say government officials should reform the system so that the safety net does not offer a disincentive to work at employers' expense. One Congressional Budget Office study reveals that when eligibility was extended by 13 weeks, it increased the duration of unemployment insurance by 2.1 weeks.

Round three. There are still empty chairs. When the music stops, applicants rush to be seated, only to find that they're trying to squeeze their round bottoms into square-shaped chairs. The mismatch can't be overcome. Available jobs require skills, education and training they lack. Age and time away from work has caused them to fall behind or seem less desirable to employers. Many people are in jeopardy of not finding work unless they achieve heroic advances in education and training.

The long-term unemployed keep the game going and going. While the average duration of unemployment is 40.8 weeks, the median is 21. This differential suggests that half of recipients are back to work in about five months while the rest linger on extended benefits—many until they exhaust their benefits. In December, 42.5 percent of unemployed workers had been unemployed for more than six months. These long-termers are the crux of the problem—costing billions but yielding poor to middling outcomes when re-entering the workforce. In 2010, some 3.9 million exhausted their benefits.

Louis Jacobson, president of New Horizons Economic Research in McLean, Va., estimates that 40 percent of the long-term unemployed are disadvantaged educationally and lack basic skills required to land a job at a store. They need training, counseling and education to be employable. Even then, many would only be capable of working at low-paying jobs that often do not yield a living wage.

In contrast, a smaller percentage of long-termers tend to be 50 and older, better-educated, experienced workers. Some may be near retirement age but lack the resources to stop working. They say they are being rejected because of their age and length of time out of work—and some may have a point.

It's hard to prove, but "they're being discriminated against because of their age," Marshall says. "Employers tell me their insurance carriers are encouraging them to hire younger, not older, people because of the differential in health care costs."

Marshall says the stigma of being out of work for an extended time also holds long-termers back. The Fair Employment Opportunity Act of 2011, proposed by Reps. Rosa DeLauro, D-Conn., and Henry Johnson Jr., D-Ga., is pending in Congress. It would make it illegal to discriminate against the unemployed. Marshall is supporting similar legislation in Connecticut.

—Robert J. Grossman

The Return on Investment for Your Tax Dollars

Twenty years ago, if you became unemployed, you would travel to your unemployment office, be interviewed by a claims expert who would take a written application, and end up with a monetary weekly award. The process would take maybe 10 days. Today, states have telephone and web-based claims processing; the personal touch has been replaced by automation. You file remotely and, when benefits begin, communicate online to report and answer questions: Are you available to work? Did you make efforts to find work?

"The employment service has shrunk," says George Wentworth, senior attorney at the National Employment Law Project in New York City. "Most states have gone to one-stop centers—a combination of organizations directing people toward training and referring them to employment data banks." Specially funded programs for veterans, workers losing out to offshoring and workers with remedial needs are among the initiatives operating under the OneStop Career Center umbrella.

Federally funded OneStops have a big mission but are hindered by budget cuts, outmoded computer systems and a silo mentality that slows the exchange of information with service providers. Established under the Workforce Investment Act and coordinated by the U.S. Labor Department's Employment and Training Administration, the centers offer training referrals, career counseling, job listings and similar services.

"When the economy goes down, and demand for our services is highest, we've faced cutbacks," observes Glenn Marshall, commissioner of the Connecticut Department of Labor. "Before the downturn, we processed 30,000 claims a week; now it's 130,000."

A few years ago, Connecticut's Department of Labor—administrator of OneStops in the state—had 1,200 employees. Today, with unemployment soaring, the department is down to 800. "We were a unit of five counselors; now we're down to two," says Anne Banaszewski, a Connecticut career development specialist.

OneStops were established on the premise that most unemployed people can and should conduct their own job searches. Too much support creates dependency instead of responsibility, lengthening rather than shortening the jobless period. "Everyone does not need hand-holding," Banaszewski says.

The tough love approach seems to work for many who never contact a OneStop other than to register. Others just use the computer banks and data sources online or on a walk-in basis. "You're totally on your own," says Mary Ellen Kirby of Zionsville, Ind. "The only programs they offered were for unskilled workers. It's fine for people like me to do everything virtually." She recently landed a sales executive position in Texas.

OneStop staff members have been directing their attention to the 10 percent to 15 percent of recipients who are in greater need of support. High-risk recipients are identified when they apply for long-term benefits. They must sign up for counseling and possible training and education referrals. They require attention and monitoring. Now, as the number of long-term unemployed individuals stands at 42.5 percent of recipients nationwide, it appears that more-rigorous screening might have netted more candidates for these high-maintenance services at the outset.

There may be a triage issue here. With limited resources, government officials may be spending too much time and resources on more-challenged individuals at the expense of others who are more likely to find work. The issues:

Should modernizing jobs databases and improving the technology that matches candidates to jobs be a higher priority?

Should the significant number of recipients who think incorrectly that they don't need help with job searches be a higher priority? "I'm amazed at the basic skills many people lack," says Peter Raymo, a business consultant in the Connecticut Department of Labor. "A lot need more than self-service."

Should recipients who blow off self-help be required to at least take an orientation to learn what's available? "There's a high probability that even minimal contact with a OneStop's self-help services can shorten the time on unemployment insurance by up to two weeks," says Louis Jacobson, president of New Horizons Economic Research in McLean, Va. Jacobson has studied OneStops.

As the recession drags on, it has become clear that there are not enough good jobs available. Still, some new jobs are always popping up. Others become available when people retire or leave. Doing a better job of matching candidates with jobs and targeting people who are most likely to benefit from training could take a bite out of the unemployment rate—and reduce expenditures.

—Robert J. Grossman