Using Shared Work Plans as an Alternative to Layoffs

In these challenging economic times, many nonprofit organizations may be considering workforce reductions.  However, New York and Connecticut both have Shared Work Plan (SWP) programs that may be an attractive alternative to such workforce reductions.  While the details may vary, the SWP in both states allows an employer to reduce the hours employees work and supplement lost wages with partial unemployment insurance during the term of the plan. The idea is to allow all the employees in an affected work unit to share in the loss of work.[1]

For example, if an organization determines it must cut payroll expenses by 20% for the next six months, it could achieve this result by reducing the number of employees by 20%. However, under a SWP the organization could retain all employees but reduce the hours employees work from a five day workweek to a four day workweek.  The affected employees would receive wages for four days of work and, in addition, receive a portion of unemployment compensation benefits equal to 20% of the total weekly benefit rate that would have been payable had the employee been unemployed a full week.  As part of the SWP, the employer may not cut fringe benefits. Thus, the employer meets the payroll expense reduction target, yet each employee, while still negatively impacted, is out only a limited amount of pay. 

SWP plans in both states can be flexible to meet an employer’s needs.  For example, the plan may relate to the entire workforce, a particular shift or shifts, or just one or more units of the workforce. Officials in both states are encouraging employers to consider a SWP as an alternative to layoffs. 

While the SWP provisions have been available to employers in New York and Connecticut for several years, until the past year the programs have been rarely used.  According to a recent New York Times article, as many as 5,000 employees are in the Connecticut SWP program this year, up from 250 a year ago. According to the New York State Labor Commissioner, 14,775 employees were in a SWP in 2008; in the first  four months of 2009, 31,446 employees were in a SWP. 

Pros and Cons of a SWP 

From the economic perspective of the employer, one benefit of a SWP is that an employer retains its skilled workers during a temporary downturn in business, and need not incur the expense of recruiting, hiring and training new employees when business improves.  A SWP also allows an employer to quickly ramp back up to full speed when funding improves. An employer may also avoid costly overtime it may be required to pay remaining workers to make up for some employees who were laid off.  Less tangible but important benefits include maintaining stability in the workforce and the morale of the workers. While employees might not be happy with a wage reduction, the negative impact on morale on the remaining employees after a layoff can significantly impact efficiency and productivity. 

However, there are some additional costs that may be incurred by the employer if it chooses a SWP over a layoff.  As noted, the employer must continue to pay all fringe benefits, without any reduction, to the affected employees in a SWP.  Also, there may be increased administrative costs associated with the ongoing reporting that may be required by a SWP. And, whether the charges to the employer’s unemployment insurance account with the State will be less than if a layoff occurred depends on the employer’s specific situation. 

From the employees’ perspectives, the benefits are obvious: employees who would have been selected for layoff are otherwise spared the hardships of full unemployment.  And while employees facing a wage cut in a SWP are negatively impacted, it tends to be less devastating to the morale of employees and disruptive to the workforce as a whole if layoffs are avoided. 

Thus, an organization must carefully consider, whether a SWP is the right solution to its budget woes.  Because SWPs are meant to last for a limited duration a SWP is not a solution for an organization that needs to permanently reduce the size of its workforce.  Rather, it may be an alternative to consider when an organization envisions that the reduction is temporary, until funding improves. 

The Requirements of a Shared Work Plan

Listed below are the basic aspects of the SWP in New York and Connecticut.  For more detailed information for the SWP requirements of each state, go to http://www.labor.state.ny.us/ui/dande/sharedwork1.shtm  for New York and http://www.ctdol.state.ct.us/progsupt/bussrvce/swp.htm  for Connecticut.

Eligibility

Eligible Employers

New York 

1) Must have 5 or more full time employees

2) Must have been liable for unemployment insurance purposes for at least 4 consecutive calendar quarters.

Connecticut

1) Four or more full time employees must participate in the plan

2) Must have filed all reports and paid all contributions for all past and current contribution periods

Eligible Employees

1) Must be able to work and available for full time work with the employer

2) Only full time regular employees (i.e. not temporary) may participate

3) Must be eligible for regular unemployment compensation and meet all prerequisites (e.g. one week waiting period in New York)

4) An employee cannot receive a combination of SWP and regular unemployment compensation that exceeds the legal maximum total benefits allowed during the course of the benefit year 

Plan Requirements 

Reduction of Hours

            New York- at least 20% but not more than 60%

            Connecticut- at least 20% but not more than 40% 

1) The employer cannot reduce or eliminate the employee’s fringe benefits 

             2) Maximum length of Plan

                        New York: 53 weeks

Connecticut: 26 weeks (may be renewed for up to an additional 26 weeks) 

3) Number of hours reduced must be applied equally to all employees in the affected work unit 

 4) If an organization is unionized, the collective bargaining agent must approve the SWP 

            5) The SWP must be in lieu of layoff of an equivalent percentage of employees   

Application Procedure

 New York-Employers

1) Written plan

2) Submit forms SW-2.1 and SW-2.2.  http://www.labor.state.ny.us/ui/PDFs/SW2_1_2_2.pdf

*Application should be submitted at least 2 weeks before but no more than one month prior to the proposed starting date of the plan 

Connecticut-Employers

1) Submit application found at http://www.ctdol.state.ct.us/progsupt/bussrvce/shared_work/swap1.pdf

*Application should be submitted 30 days prior to start date of the plan - - the Department of Labor is required to approve or reject a plan within 30 days of its submission 

Employees

There is no requirement that affected employees file for unemployment

In New York, after the SWP is approved, the employer receives Shared Work Plan Application Benefits forms (Form SW330 http://www.labor.state.ny.us/ui/PDFs/Sw330.pdf) to distribute to the affected workers. The employer collects these forms, provides the certifications and sends them to the Shared Work Unit in Albany.   

Ongoing Reporting Obligations

New York

Weekly or bi-weekly during the life of the plan, claim certification forms (Form SW4 http://www.labor.state.ny.us/ui/PDFs/SW4.pdf) are distributed to the affected employees, and once completed by the employees and the employer, the organization submits the forms to the Shared Work Unit in Albany.

Connecticut

Employer on application agrees to: 1) furnish all reports and information necessary for the administration of the plan; and 2) monitor and evaluate the operation of the SWP as directed by the Connecticut Department of Labor

Changes After the SWP Begins

Both states allow the employer flexibility to make changes after the SWP begins. In New York, an employer can make many changes without approval of the State.[2]

In Connecticut, the employer may make changes that are not substantial with the approval of the State Administrator.  Substantial changes may be obtained by requesting a termination of the existing plan and submitting an application for a new plan.

Conclusion

Nonprofits should carefully consider whether a SWP is a practical way for organizations to address funding shortfalls.  Your organization should consult with legal counsel to fully discuss this option.

[1] New Jersey does not currently have a SWP.  However, legislation was introduced on June 22, and it has been referred to the Assembly Labor Committee for review.