Over the last 2 years we’ve heard of massive lay offs. In fact in the height of our economic crisis the number of jobs cut or lost each month headlined the news reports, blogs, tweets and personal facebook pages. Mine included. Eight million jobs were lost over the last two years – mind boggling. A recent Workforce Management poll claimed that more mature companies did less laying off than less mature companies as part of a knee jerk reaction to less spending by consumers and less credit availability for small and medium sized businesses. This leads me to think that there is an alternative to lay offs and not just for mature businesses. It makes me think that there are literally “oceans of opportunities” to reduce employee costs without reducing the numbers of employees. In the next few minutes we are going to explore this ocean of opportunity with the intent of giving you some tools to help you reduce employee costs while maintaining your current employee roster – which in turn will keep you profitable and your employees productive.
Clark and Donn – take it away! Do role play.
Show appreciation for Clark and Donn’s participation. To recap, what would you do if: (Read slide) I purposefully left out some things (that’s the beauty of a case study) because I didn’t want you to get bogged down in the details. I wanted you to have the opportunity to think outside the box because if there was ever a time we need to think outside the box – it’s now.
Take a poll by raised hands to see who would cut versus who wouldn’t. Write ideas on white board as to what they would consider when deciding to cut employees or not.
First of all, if we truly want to effect employee costs and not employees – what exactly are we talking about? A long time ago I was taught that what is measured can be managed. What is not measured – can’t be managed. A question you should ask yourself is: how well do I MEASURE the following: (Read from slide) If you don’t have a good handle on each of these items you can’t manage them well until you know the exact length, width, weight, etc. – however you would measure them.
Keep in mind that every business will look at these things a little differently and some will afford you a greater opportunity for cost savings than others. The latest statistics from BLS says that when considering employee costs, the average private employer spends approximately 70.8% on salaries and 29.2% on benefits. Do you know how well your company stacks up to these statistics? Some of these items may not show up on your Profit and Loss statement, but they do have a direct impact on the things that do.
The employment cost index is a calculation the federal government makes on a quarterly basis to detail the changes in the cost of salaries and benefits. This tells if salary and benefit costs are rising or falling, thus measuring the inflation of wages and employer paid benefits. For the quarter ending March 2010, the ECI increased nationally by 1.6%, as compared to 1.9% for the same period of 2009. Your employment cost index can be calculated by dividing your cost of goods sold by your selling, general and administrative expenses. This can give you a base line to see how your costs vary quarter by quarter – or even month by month How does your organization compare?
If you decide to cut some employees, have you considered the costs associated with deleting that function or minimizing the number of employees performing that function? Some things to consider are (read from slide) Remember – what is measured can be managed – if you cut employees is the overall RIO worth it?
Could some of these costs been minimized by looking at alternatives like: (insert ideas) Talk about telecommuting, outsourcing, reducing hours or benefits, etc. Remember we need to think outside the box.
Overall, whether you are considering lay offs or downsizing - the BIG question is: (Read first bullet) and (Read second bullet) If it’s not measured it’s not being managed.
Ok – so you decide to do a lay off. Do you know what you’re in for? Do you know how to respond to the notices you’ll be getting? Or if you use ADP or some other payroll processor or PEO, do you know what they’ll do for you versus what you’ll have to do for yourself versus what your true responsibilities as an employer are? Are you the employer of record or is there some kind of “joint employer” relationship that you only half understand? These are the kinds of questions that can keep a business owner up all night.
But before you do that layoff have you considered other alternatives? Like the Shared Work Program. Rather than do a mass lay off, if you reduce hours it allows you to divide the available hours of work among a specified group of effected employees in lieu of layoff. This allows employees to receive a portion of benefits while working reduced hours. That affects you exposure rate in a good way. Have to apply for it before laying off – but it may be well worth it.
Rumor has it that when employees get wind of any kind of perceived negative employment decision workers compensation claims “mysteriously” increase. So be prepared for that when considering a lay off or RIF. There is always the possibility of cost savings regardless of whether you lay people off or not. Do you know your current WC modifier? Do you know how it stacks up against others in your industry? Have you shopped around for other WC providers in the last 2 to 3 years? Are your jobs coded correctly? Do you have a solid safety program in place? Have you implemented any best practices like light duty, trained first responders or triage nurses, in order to get better rates? Oceans of opportunities!
Are you aware of other opportunities to reduce costs?
Need to do a little more research
Read Slide Designated Community Resident in someone living in an Empowerment Zone, Renewal Community or Enterprise Community. IV-A Recipient is Aid to Families with dependent children, or temporary assistance for needy families.
Read Slide – Workforce Development can assist you in finding qualified applicants from these targeted groups. Term Family Assistance Recipient is long term welfare recipient Disconnect Youth is someone between the ages of 16 and 25 who is not attending school, has only basic skills and not regularly employed.
Need to verify for Arizona
While this can be a tax savings for you – there is paperwork involved and some one needs to oversee the process to make sure it’s being administered fairly and consistently. But you do the math – might be worth checking out!
This program is actually a grant program that the state funds to help (read slide). There are some requirements but it could be worth checking into.
This program is actually a grant program that the state funds to help (read slide). There are some requirements but it could be worth checking into.
If you have under gone a RIF or layoff, did you consider what would happen when the crisis was over? I mean I HOPE you realized it wouldn’t last forever and you included “rehiring” and even ultimately expanding your organization. With that said, are you measuring your new hire costs? Even if you haven’t laid people off, I’m hoping that the economic stimulus will give you the opportunity to expand your business. If so, bringing new employees on means being aware of the costs associated with new hires. Again, thinking outside of the box is what’s needed.
In addition, having new employees means having some type of training costs. Whether you laid off or not – every time you bring on a new employee means (read slide). It’s that measuring versus managing thing again.
Something to keep in mind regardless of the situation . . . Even when you hire someone there is lost productivity costs for a while. Consider this information from the American Society of Training and Development.
At the beginning of my presentation I told you about a Workforce Management poll that said mature companies didn’t lay off as many employees as less mature companies did. You know why? It’s because they not only thought outside of the box – they ACTED outside of the box. Here are two examples – during the recent recession, teams of this company’s employees were empowered to decide who would be laid off within the team. Once managers explained the company’s economics, risks and customer needs, the employees themselves decided who would be laid off. A more senior employee opted to be laid off first because he knew he was in a better situation than a less senior employee who had a baby on the way. Another example is a company that empowered their employees to make recommendations for their annual wage increase. The market data shared with this team indicated that a 5 to 6% increase was warranted. After looking at the company’s financial picture and after a lot of discussion, this employee team refused to accept more than 3.6% that year. They felt it was important to keep the company competitive but to also take responsibility and ownership for the business. Your people can be incredibly flexible and creative – if they are trusted to make good decisions and have enough good information and management support to do it. Your company’s collective imagination and intelligence – your human resources your ocean of opportunity will help you increase profits and productivity. That’s my challenge to you. And one that I believe there are oceans of opportunities to take advantage of.
Thank you for your time, attention and participation!
Cutting Employee Costs Without Cutting Employees
Reducing Employee Costs Without Reducing the Number of Employees Jude Williams, SPHR
To Cut or Not To Cut <ul><li>Massive Layoffs in Recent Years </li></ul><ul><li>Workforce Management Poll </li></ul><ul><li>Oceans of Opportunities Await </li></ul>
What Do You Think? <ul><li>Role Play </li></ul><ul><li>Tools to Reduce Employee Costs </li></ul><ul><li>Overall Goal = Profitable Employer + Productive Employee </li></ul>
Company’s Current Situation <ul><li>Sales down by 38% year over year </li></ul><ul><li>Sales down by 15% over last month </li></ul><ul><li>Utility costs going up </li></ul><ul><li>Employee health insurance up for renewal – last year’s increase 23% </li></ul><ul><li>Suppliers want their money </li></ul>
What Do You Think? <ul><li>Would you cut or not cut? Why? </li></ul><ul><li>What things would you consider in your decision? </li></ul>
What Employee Costs Do You Consider and/or Track? <ul><li>Salaries </li></ul><ul><li>Benefits </li></ul><ul><li>Workers Compensation </li></ul><ul><li>Unemployment </li></ul><ul><li>Social Security </li></ul><ul><li>Vacation, Holiday, other PTO </li></ul>
What Employee Costs Do You Consider (continued)? <ul><li>Training Costs </li></ul><ul><li>Perks </li></ul><ul><li>Facilities </li></ul><ul><li>Turnover or cost of replacing </li></ul>
Employment Cost Index <ul><li>Do You Know Your Current Employment Cost Index? </li></ul>
Costs Due To Someone Leaving <ul><li>Calculate the impact on department productivity. Who will pick up the work, whose work will suffer, what deadlines may be missed, what services/products will be eliminated? </li></ul><ul><li>Calculate the cost of severance, benefits continuation, paying out accumulated PTO and other conditions of employment costs. </li></ul><ul><li>Calculate the cost of unemployment benefits plus the cost of preparing and participating in unemployment hearings and proceedings. </li></ul>
Costs Due To Someone Leaving <ul><li>Calculate the cost of the person filling in while the position is vacant. </li></ul><ul><li>Calculate the loss of productivity at 50% of the person’s salary and benefits for each week the position is vacant. </li></ul><ul><li>Calculate the cost of an exit interview, administrative costs of stopping payroll, COBRA administration, and other functions and/or costs involved in terminating an employee, I.e. collecting company equipment, etc. </li></ul>
Costs of Turnover <ul><li>Do you know your company’s true cost of turnover – either voluntary or involuntary? Is there a difference? </li></ul><ul><li>How do you track your turnover metrics? </li></ul>
Unemployment <ul><li>Have you aggressively fought unemployment claims in the past? </li></ul><ul><li>Do you have a written policy, trained your supervisors, and reviewed every termination? </li></ul><ul><li>Do You know that every 1% jump in SUTA costs you $125.20 per employee per year? </li></ul>
Unemployment – Shared Work Program <ul><li>Reduced hours means “shared” unemployment benefits </li></ul><ul><li>Have to apply for it prior to reducing hours </li></ul><ul><li>Win-win for everyone </li></ul>
Workers Compensation <ul><li>Do You Know Your Current Modifier? </li></ul><ul><li>Cost Effective Provider </li></ul><ul><li>Are You Confident that Jobs are Coded Correctly? </li></ul><ul><li>Safety Programs In Place? </li></ul><ul><li>Light Duty Jobs </li></ul><ul><li>First Responder or Triage Nurse on Site </li></ul>
Other Opportunities To Save <ul><li>Work Opportunity Tax Credit (WOTC) </li></ul><ul><li>Health Insurance Premium Tax Credit </li></ul>
Work Opportunity Tax Credit (WOTC) <ul><li>Credit for hiring employees from any of 12 targeted “hard to employ” employee groups </li></ul>
WOTC Requirements: <ul><li>New adult employees must work over 120 or 400 hours </li></ul><ul><li>The credit is 25% of qualified first year wages for those employed at least 120 hours and 40% for those employed over 400 hours or more </li></ul>
WOTC Tax Credit for Employers: <ul><li>$2,400 for each adult new hire </li></ul><ul><li>1,200 for each summer youth hire </li></ul><ul><li>$4,800 for each new disabled veteran hired </li></ul><ul><li>$9,000 for each new long term family assistance recipient hired over a two year period </li></ul>
Health Insurance Premium Credit <ul><li>Helps small employers provide affordable health coverage to their employees and dependents </li></ul><ul><li>Also applies to individual plans </li></ul>
Health Insurance Premium Credit <ul><li>$1,000 for single employee </li></ul><ul><li>$3,000 for family </li></ul><ul><li>OR – 50% of the health insurance premium which ever is less </li></ul><ul><li>More information – www.azdor.gov , click on tax credits and select health insurance </li></ul>
New Hire Costs <ul><li>Cost of Hire </li></ul><ul><li>Cost of On-boarding </li></ul><ul><li>Cost of “outfitting” – desk, supplies, equipment, change from old employee to new </li></ul>
Training Costs <ul><li>Orientation costs = salary cost + cost of person conducting orientation + orientation materials. </li></ul><ul><li>Calculate the cost of departmental training (include person conducting training – their salary plus loss of productivity if this isn’t their main job. </li></ul><ul><li>Calculate the cost of all training materials, include resources such as internet connection, etc. </li></ul>
Lost Productivity Costs <ul><li>New employee contributes at a 25% productivity level for first four weeks. </li></ul><ul><li>During weeks 5 – 12, contributes at a 50% productivity level. </li></ul><ul><li>During weeks 13 – 20, contributes at a 75% productivity level. </li></ul><ul><li>After that – we hope they get to 100% soon! But how can we be sure??? </li></ul>
What’s the REAL Cost – Of Either Decision? <ul><li>Do the math! </li></ul><ul><li>Think outside the box. </li></ul>
Final Thought – Blessed are they who are flexible – for they will never be bent out of shape. Questions???