Work sharing may help companies avoid layoffs

US workers weekly working hours & pay reduced, as states make up for lost wages

As companies struggle to make it from recession to recovery, many are turning to a novel but unheralded programme that cuts their costs while sparing their workers’ jobs.

Under the programme, known as work-sharing, employers reduce their workers’ weekly hours and pay, often by 20 or 40 per cent, and then states make up some of the lost wages, usually half, from their unemployment funds. Even though 17 states have adopted the programme, and many executives and economists hail it as a way to keep workers employed and companies staffed with skilled labour, only a fraction of the businesses and workers that are actually eligible are benefiting.

That is largely because of inertia and ignorance, government officials say. Many companies are unaware of the programme’s existence, and few states advertise it — even though the programme is credited with saving hundreds of thousands of jobs in Germany, whose work-sharing programme has inspired other nations.

Unemployment rising

With unemployment in the United States above nine  per cent and climbing, pressure is growing on the states that have work-sharing to increase the number of companies and workers that participate, and on the 33 states that don’t have work-sharing to embrace the programme.

At his metal-working plant here in Connecticut, President of Tri-Star Industries, Andrew Nowakowski, says the programme is good for employers, workers and the economy.

“It’s a lot better than layoffs,” said Nowakowski, whose skilled machinery operators make metal parts for products as diverse as cellphones and car engines.

His 29 nonmanagerial employees now work three or four day weeks. “The alternative would have been to lay off three to seven workers,” he said, “but that would mean that when things become busier, I’d run the risk of not having the trained people I need.”

Lower take-home pay

Tri-Star’s employees like the programme even though it means lower take-home pay. “Without this, it would have been four or five guys out the door, and one of them could have been me,” said John Drzata, who runs an elaborate, five-spindle precision lathe that etches threading into metal parts.

Jim Cassidy, who works Monday through Wednesday, uses the extra days off to go camping in the Berkshires, although some workers use them to look for spare jobs, like painting.

“We get to keep our jobs and keep our benefits,” Cassidy said. “You lose your job, you lose everything.”

The State of Connecticut makes up more than half the wages the workers lose because of shorter workweeks. New York participates in the programme, too.

States have different unemployment insurance formulas, but generally, a worker being paid $600 a week, if laid off, might receive $300 in jobless benefits. With work-sharing, if that worker’s hours drop 20 per cent, wages would fall to $480 and work-sharing would make up at least half of the lost wages ($60), for a total of $540 a week.

With savings from reduced income taxes and from commuting fewer days, some workers nearly break even.

Minimum publicity

The state and federal governments have hardly publicised work-sharing, in contrast to the European Union, whose leaders have urged the Continent’s employers to embrace work-sharing to combat rising unemployment. 

But since the downturn began, some states have beaten the drum to make sure more employers are aware of the programme. Nowakowski first learned of Connecticut’s programme last October when a state official phoned his office manager to publicise it.

As a result of such outreach efforts, 5,000 Connecticut workers are participating in work-sharing, up from 250 a year ago. In Washington State, 39,119 are participating, up from 6,039 a year ago. And in Massachusetts, 10,127 workers are, compared to 621 a year ago — and 458 employers, up from 31 last year. “I frankly don’t understand why there aren’t more states that participate in this programme,” said Suzanne Bump, the Massachusetts Secretary of Labor and Workforce Development.

More paperwork

Many states are not participating because they did not focus on the programme during good times and because it could create new burdens and paperwork for already overloaded unemployment agencies.

 “But that pales compared to the programme’s benefits,” said M. Patricia Smith, the New York State labour commissioner.

Typically, participating employers file a weekly report of each employee’s reduced hours, and a week or two later, workers receive partial unemployment benefits, often called short-time compensation.

Benefits limited

Some states limit work-sharing benefits to employees who had been working 35 or more hours a week before the cutbacks.

Other states allow part-timers to participate. Some states give employers just two options: having employees work 24- or 32-hour weeks; others let companies cut employees’ hours anywhere from 10 to 60 per cent.

Most states require employers to continue providing full-time benefits, like health coverage, to employees on reduced hours.

At Columbia Steel Casting, a 350-employee foundry in Portland, Ore., management likes work-sharing because when it lays off skilled machinists, they are hard to lure back. They often take jobs at Boeing.

“People don’t quit other jobs to come to work in foundries where it’s extremely hot,” said John Birkhofer, a Human Resources Manager. “It’s different from when you’re hiring counterpeople for McDonald’s.”

Nowakowski said it took 18 months to train apprentices to use Tri-Star’s complicated lathes. “I would do whatever I could to maintain this core group of employees long term,” he said.

Work-sharing will not prevent layoffs in industries in a profound tailspin, like automobiles. Economists say it is for companies confident of a rebound when the economy improves.

“The great thing about this programme is you’re not decimating your company,” said Linda Saloom, Business Operations Manager at Saloom Furniture, in Winchendon, Mass., whose employees are working 32-hour weeks. “Our company is not broken. The economy is broken.”

Several executives that use work-sharing explained companies’ choices.  Needing to cut payroll by 10 per cent for six months, recession-plagued managers could lay off 10 per cent of their workers, perhaps incurring anger and heavy severance payments.

Or they could use work-sharing, avoiding severance payments and the expense of rehiring and retraining later.

Morale boosting

“Just the ability to hang on to people in tough times and not force them out the door is good for morale,” said Vice President for Human Resources at Reflexite, David Edgar, a manufacturer based in Avon, Conn., that makes reflective material for highway signs, motorcycle helmets and roadwork vests.

Edgar acknowledged there were limits. “I don’t think people would want to be on a 32- or 24-hour weeks for seven, eight months,” he said.

“There might be a tipping point when people ask, ‘When do we get some layoffs so we can get back to 40 hours?’ ”

Reflexite cut most employees’ hours from February through April, but with orders increasing as highway construction picks up under the stimulus plan, all workers are now back at 40 hours.

“A lot of my friends got laid off at other companies,” said Dave Korncavage, a Logistics Supervisor and 19-year employee at Reflexite.

“They’re hoping to get called back, but maybe that won’t happen. Their employers don’t have anything creative like this. Maybe if they did, my friends would still have a job.” he added  with conviction.