Tips & info

Lay-offs or staff reduction

September 2002

The general economic slowdown we are experiencing is affecting many members of the Joint Agencies' Trust. Your nonprofit may be dealing with the issue of downsizing, or, at a minimum, how best to steer your organization through uncertain economic times. The good news for Trust members is that we are there to help you control and predict the cost of unemployment claims and, thanks to careful planning over the years, reserves for unemployment costs are at an all-time high, so members have a financial cushion when it comes to layoffs.

Unemployment costs can be an important consideration when making tough choices about terminations. "Layoffs aren't cost free," says Paul Fountain, Director of National Trust Programs. "If you eliminate a position with a $30,000 salary, you may end up having to pay $8,000 to $10,000 or more in unemployment benefits, depending on which state you are in, so your net savings might only be $20,000." If you are trying to save $60,000, you would have to lay off three people, not just two, to accomplish that.

Paul has three recommendations when it comes to cutbacks:

  • "Take the long view," Paul emphasizes. "The time to think about layoffs is the six months or more before they occur. If you talk to the claims management team that much in advance, there are steps we can help you take that will minimize the cost to your organization. On the other hand, if you make a layoff decision without advance planning, you may end up wasting thousands of dollars."
  • "Help your departing employees find new positions. "That's obviously good for the employees, but it is also good for the organization, because the sooner they get work, the less you will have to pay in benefits," Paul notes. Some nonprofits help employees prepare resumes, give them paid time off to go to job interviews, and even send notices and recommendations to other organizations about the talent they have available.
  • "Be careful when making assumptions. Some managers have calculated their savings by assuming that if they give severance or vacation pay, the worker will be ineligible for benefits. "This may or may not be true," he says. "The laws vary from state to state, so check with your claims management team."

If you have questions on this matter, even if you are not entirely sure a layoff will be necessary, don't hesitate to call the claims management team. "We would much rather spend some time planning for a layoff that never occurs than be called after it is too late for us to help you achieve real savings," says Paul.

As an alternative to layoffs, some members have been exploring the option of participating in Shared Work Programs. While the details vary by state, an employer can provide employees whose hours are reduced with extra unemployment benefits. For example, an employee whose work week is reduced 20% would generally not be eligible for unemployment benefits because the gross pay would still exceed the benefit amount. But if an employer elects to participate in their state's Shared Work Program, the employee would be eligible for 20% of the benefit amount. It is important to note that the additional unemployment benefit, paid through your Joint Agencies' Trust account, is a real cost, offsetting some of the savings of the reduced hours. "It's a great program for employees, but the employer needs to know the cost of that benefit, especially if it is chosen to save money," says Paul. "We encourage you to call with any questions before you make the election, as it is not a reversible decision."

As you review your situation, here are some suggestions:

  • Stay in touch with your claims management team and let them know your plans for current and future staffing.
  • Begin planning now for future unemployment costs so that you can include them in your budgets.
  • Review your Trust reserve account balance in light of potential predicted layoffs and decide if you need to raise it to cover possible increases in unemployment claims.

We encourage you to call the claims management team at 800/846-9251 to discuss your plans. Call Terri Oakley, Trust Administrator, at 800/442-4867 to discuss your reserve account or other issues.