Sharing Work and Unemployment Benefits

As the nation’s employers continue to stagger under a load of financial misery, HR professionals at some companies have found a powerful retention tool that enables them to avoid layoffs and hang on to trained employees.

They’re setting up work-sharing programs, using a little-known feature of the unemployment laws in 18 states. Work sharing, shared work or short-time compensation programs, as they’re variously known, soften the blow of full layoffs by allowing employers to reduce hours for full-time employees, who then may collect prorated unemployment benefits for the lost hours. Rather than lay off 20 percent of the full-time workforce, for example, an employer might reduce everyone’s hours by 20 percent. Some employers that implement work sharing continue to fund employee benefits while the program is in place.

"With all the publicity about layoffs due to the uncertain economy, our employees have embraced our use of work sharing as an alternative to layoffs," explains Pam Thayer, director of human resources at the New Buffalo Shirt Factory, a Clarence, N.Y., manufacturer of high-tech, screen-printed garments.

"It’s a win-win," adds Dave Randall, personnel and safety director for Columbia Steel Castings, a Portland, Ore., foundry. "We get to keep our trained workforce, and employees maintain their standard of living."

To make this happen, a participating employer in a state that allows work sharing has to submit a plan to state officials. The employer must also get a green light from any unions. Employers may institute work sharing plantwide or in a specific department or unit.

In general, with some variation among the states, plans must reduce work hours between 10 percent and 40 percent, involve only regular full-time employees, and identify participating employees by names and Social Security numbers.

Unlike the usual requirements for receiving jobless benefits, employees in work-sharing programs are not required to demonstrate that they’re seeking work and are available for it, but they are required to be available for their normal workweek.

The programs are relatively simple for employers, too. "All we do is fill out a master form every Monday," says Andy Nowakowski, president and chief executive officer of Tri-Star Industries, a Berlin, Conn., manufacturer of metal components, "and employees don’t have to go to the Labor Department, log in, and prove they’re available and looking for work. That makes it easier on them."

Bob Scodari, chief financial officer of Better Packages Inc., a Shelton, Conn., manufacturer of packaging equipment with 35 employees, agrees: "It’s completely easy administratively—once a week, we send information to the [state] Labor Department."

For Columbia Steel’s 350 employees, Randall says administration of the work-sharing program "is a little bit of a headache because we have to review the payroll and attendance to make sure people qualify. For example, if a person was sick for one day, they don’t qualify because they’re not available for their usual work," he explains. "But it’s a price I’m willing to pay because it’s good for the company."

Unemployment officials in states that allow work sharing say employer participation is up this year—way up. In Connecticut, where 50 companies had work-sharing programs in effect a year ago, the number is now 300, says Nancy Steffens of the state’s Labor Department.

In Oregon, in any given year about 50 employers normally have programs, says Carol Fisher, benefits adjustment unit manager of the Bureau of Labor and Industry. As of March 13, 372 employers were participating.

And in Rhode Island, where 154 employers participated in 2007, 1,800 companies participated in 2008, says Ray Filippone, director of unemployment insurance for the state Department of Labor and Training.

Experience Ratings

Shared-work benefits are charged against employers’ experience rating accounts in the same way as other unemployment benefits. But employers say they take the increases in stride, considering the alternative.

"Our unemployment contributions went up slightly, but they would have gone up more with full layoffs," says Scott Hollander, vice president of human resources for Latham International, a manufacturer of packaged swimming pools and components with 240 employees at two plants in Latham and Scotia, N.Y. "Layoffs would be more of a hit without work sharing. It’s a very small price to pay."

Rob Calef, HR manager for ChemArt, a Lincoln, R.I., manufacturer of high-end Christmas ornaments, is similarly unconcerned. "Obviously, there’s going to be an effect on our experience rating, but it’s all relative in light of the costs of recruitment and training of new employees," he says.

"It’s pay now or pay later," notes Bob Cartwright, SPHR, president and CEO of Intelligent Compensation LLC in Austin, Texas. "The rule of thumb is that the cost of replacing an employee is three times the cost of annual pay. Your experience rate goes up somewhat [with work sharing], but you keep the talent."

The Benefit of Benefits

Some state laws require employers to maintain benefits such as health coverage and pension plans during a work-sharing period. Others don’t.

Oregon law doesn’t require continuation of benefits, but Randall says his company has decided to maintain benefits anyway. "Continuing to pay employee health care premiums is costing the company, but having these employees move to other industries would generate significant recruiting and training costs when business levels increase," he says.

"Maintaining benefits is not a requirement, but our department encourages it," adds Filippone of Rhode Island. "We’ll say to an employer, ‘Instead of reducing hours 10 percent, why don’t you reduce them 20 percent and use the extra money toward health coverage?’ "

One Rhode Island employer that continues to fund employee benefits is ChemArt. "We’re a familial work environment," explains Calef of his 85-employee plant. "Most employees have been here six years or more. Retention is high. We see employees as people first and employees second. To start pulling the rug out from under people in the long run does more harm than good." He believes that the cost of maintaining benefitsis "insignificant" in the grand scheme of things.

"Florida law doesn’t require employers to continue paying health or other benefits to workers in an approved plan," says Robbie Cunningham, communications director for the Agency for Workforce Innovation in Tallahassee. "However, employers participating in short-time compensation plans are typically employers who want to keep their workforces intact rather than undergo layoffs. Short-time compensation employers generally have an investment of skill and training in their staffs that would be costly to replace. Consequently, employers would likely not want to adversely affect workers’ benefits since this could be impetus for workers to leave the companies."

The cost of maintaining benefits is more than made up by levels of quality and productivity, says Latham’s Hollander. "Our work-sharing program helped us avoid $1 million in costs over the past four years—not only productivity and quality, but turnover, staffing and retraining" skilled laborers.

Effect on Productivity

Columbia Steel’s foundry work environment is hot and the work is heavy, physical labor, says Randall. "With work sharing, employees working three or four days a week aren’t as tired. They’re relaxed and ready to work."

Columbia Steel employee Tony Davis agrees: "We’re running full tilt. Work-share employees are more focused."

Consultant Cartwright says work sharing "works in favor of the company because employees feel better off and more willing to work hard."

Choosing Employees

While employers cannot designate individual employees for a program, they do have some flexibility.

"We chose work-sharing employees based on an increase in inventory—we had fewer orders, so the product was accumulating," says Scodari of Better Packages. "That’s why we started with manufacturing employees. We hoped it would be short-lived and that manufacturing would be enough, but then we had to extend it to administrative employees. Most are working 40 percent, a two-day week."

Last year, ChemArt "chose all hourly manufacturing and assembly employees" with work of a cyclical nature for its work-sharing program, says Calef. "This year, we expanded it to sales and marketing, graphics, IT, and accounting."

Joel Shaughnessy, personnel director of Starrett Manufacturing, a precision toolmaker in Athol, Mass., says, "Originally, it was our entire production facility, based on sales and tools shipped. Everyone went to 32 hours." Today, 449 of Starrett’s 700 employees are on work sharing.

Tri-Star Industries "picked all hourly staff, companywide—21 or 22 of them," says Nowakowski. "We had to sign an agreement with the [Connecticut] Department of Labor not to reduce benefits and promise that the program would be departmentwide, with no picking and choosing," he says. He adds that employees’ contributions to their health coverage and their 401(k) accounts remain at the levels they would pay if they were working a 40-hour week.

Columbia Steel’s "work-sharing employees were chosen by skill and ability, not seniority," says Randall. "We have both union and nonunion employees, and the union had to buy off on the concept. It was a little bit of a sell at first with the union. But when [union officials] understood the benefit, they bought on quickly."

New Buffalo Shirt Factory’s Thayer says, "We chose all hourly workers. They’re divided into units within departments, and as production needs dictate, an entire unit will be on shared work on a given day."

What Kinds of Companies?

A variety of companies participate in work sharing, says Chris Swenson, who runs the program for the Massachusetts Department of Labor and Workforce Development. “But there are more manufacturing employers because the scheme fits well with their operations—the employees are skilled and work the same number of hours each week. The program was designed for that kind of operation.”

Carol Fisher, benefits adjustment unit manager of Oregon’s Bureau of Labor and Industry, says, “Manufacturers are our biggest group.” She notes, “We have a lot of manufacturers of RVs and mobile homes. But we also have a number of builders and other companies based on lumber, some architectural and engineering firms, and some travel and title companies. Some have as many as 600 employees. There’s a big variety of employer sizes.”

"The only negative is that employees are supposed to get their [state] checks in 10 days, but they’re not on time," Nowakowski says. "I think the [Labor Department] is overwhelmed."

Calef says Rhode Island’s unemployment agency "is dealing with four to five times the workload this year, with no staff increases. That slows processing. Checks are sometimes a couple of days late. But at least employees know they’re coming."

Randall admits that "Sometimes there are administrative hassles with paperwork. Employees have to fill out forms every week, and sometimes there’s a glitch, but the problem usually comes back to the employee himself, such as a change of address."

Despite occasional hassles, "I love work sharing," says Rick Kaliszewski, a master shipper with Better Packages. "I work three days, I get two days off, and I only miss one day’s pay. Health benefits aren’t affected, so that’s great. The checks are on time every Saturday. And I still have my job."

It’s a great benefit, says Heather McGinnis, a key account executive in ChemArt’s Business Development Department. "I picked up an extra job for my off day, and I get to spend more time with my aging parents."

Columbia Steel’s Davis agrees: "It’s working out really well: There’s been no glitch in payments, I’m thankful to have the supplemental income, and I get my job back."

Nowakowski says "Employee compensation for the days off ranged from 65 percent to 75 percent of a normal day’s pay." Another advantage: Employees "save the gas for the drive to work."

Employees at Better Packages aren’t shy about showing their appreciation. "Employees stop the company president, they pull him aside and thank him," says Scodari. "They think it’s great, especially the medical benefits. They’re extremely appreciative."

Web Extras

Chart: Short-time compensation rules in 18 states (Department of Labor)

SHRM video: Christine Walters, owner of FiveL Corp., discusses legal and practical issues that arise when a business decides to cut back employees’ hours.