Prevent Layoffs by Starting a Work-Sharing Program

You need to reduce your staffing costs. The typical way to do so is by laying off employees. However, before you let anyone go, consider another option: work sharing.

Here’s work sharing (not the same as job sharing, by the way) works: Employees work up to 60 percent fewer hours per week and usually take a pay cut, typically between 10 and 40 percent, as well. States use their unemployment insurance funds to make up for a portion of the wage cut, while businesses chip in the rest. So say you need to reduce all of your workers’ hours by 20 percent. Instead of laying 20 percent of them off, you can reduce their hours by 20 percent, having them work four days a week instead of five. The state will pay them regular unemployment insurance benefits of 20 percent, which offsets their lost earnings. You continue paying them wages — either at the regular rate or at a reduced rate –  for the hours they work.

While a business can choose to cut hours for all workers or just a select group, the idea is to distribute the reduced amount of available work and hours for work across the company’s workforce. It’s not painless, but it reduces the agony felt by a small group of workers to a smarting shared by the entire staff. Another benefit: When your company needs to ramp up production and restore those cut hours,  the workers you need to do the job will still be on staff, saving the time, money, and hassle involved in searching for new people.

Twenty states nationwide, including major employers like California, Maryland, New York, and Texas offer work-sharing programs, which helps their businesses lower costs and keep employees. Democratic lawmakers introduced a bill last July that would give states temporary federal financing for work-shared benefits paid to workers (states that already have work-sharing programs would receive 100 percent financing, while states starting them up would get 50 percent). The Obama Administration is also making work sharing a highlight of the American Jobs Act.

American work-sharing programs were inspired by a similar program used in Germany. Trumpf, a German machine-tool program is using it to survive the downturn without laying off any of its 4,000 domestic workers. But in the U.S., Trumpf recently let go 90 of its 650 employees.

Business owners seem to like the concept. New Buffalo Shirt Factory, an apparel manufacturer in New York state with 70 employees, started participating in the state’s work-sharing program in 2010. The move saved 25 jobs and helped the company learn how to better manage labor costs.

Tri-Star Industries, a metal-working plant in Connecticut, now has its 29 non-managerial employees working three- or four-day weeks. While this means they take home lower pay, workers told The New York Times that they like the program because it lets them keep their jobs and they get more time to do other things, from camping to side jobs for extra cash. Employee John Drzata said, “Without this, it would have been four or five guys out the door, and one of them could have been me.”

The Obama Administration is putting the spotlight on Pilgrim Screw Company in Rhode Island. The state’s work-sharing program program allowed Jorge DeLeon, a Pilgrim employee for 17 years, to stay on the payroll when product demand slowed. He reduced his hours 20 percent, and Rhode Island’s unemployment insurance program made up part of the difference in his pay. After six months, Pilgrim restored DeLeon’s full-time schedule and kept an experienced worker on its payroll.

In most states’ work-sharing programs, any business with a minimum of five full-time employees who have been eligible for unemployment insurance for at least four full calendar quarters can apply to participate. To qualify, employers must meet several conditions, such as cutting worker hours and wages by 20 to 60 percent without reducing or eliminating worker benefits.

Work sharing isn’t right for every business, particularly those that have already cut workforces to the bone. Economists also debate whether it’s a good idea to offer the program to companies in sectors that many never see an economic rebound (think desktop computer makers and printing plants). It’s also not a guarantee that a company will prevent layoffs down the line.

States say only a fraction of companies eligible for their work-sharing programs have signed up — and are missing out. If your business operates in a state that offers one, check with your state’s Department of Labor for program details.

About Vanessa Richardson

Vanessa is a freelance writer in San Francisco who writes about small business and personal finance. She has been a staff writer for Money and Red Herring, and now writes frequently for sites like Bankrate, Entrepreneur, MSNBC and Money.
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