Top 5 Employer Options To Save Costs Short of Layoffs
Friday, February 5, 2010

In a previous article, I chronicled the top 5 mistakes employers make when reducing their workforce. In this article, I will summarize options short of layoffs. The following are some examples that companies should consider in an effort to reduce costs and overhead: 

1. Alternative Workweek Schedule

In this author’s experience, some of the companies with highest morale and lowest turnover are those which implement a 4-day/10 hour per day workweek without the payment of overtime. Employees working under this arrangement must be paid overtime of no less than one and one-half times their regular rate of pay for any work in excess of their regular daily hours (up to 12 hours) and for any hours in excess of 40 in a workweek. They are also entitled to double their regular rate of pay for any work in excess of 12 hours per day and for any work in excess of 8 hours for those days worked beyond their regular work schedule.
California employers have the ability to propose a “menu” of work schedules for the affected employees to choose from; alternatively, the employer can propose only a single work schedule for all employees. In addition, an employer has options to propose more than one alternative schedule to different “work units” within the company; indeed, it can divide the workforce into separate “work units” and propose different schedules for each. There are strict requirements which must be followed to properly implement an alternative workweek schedule and therefore avoid overtime liability for certain hours which would traditionally require overtime pay. These requirements include providing a detailed notice and proposal to the affected employees, a special meeting at least 14 days before the election, a secret ballot election, and notice to the California Division of Labor Statistics. See Labor Code § 511; applicable Wage Order.

2. Telecommuting

Telecommuting is also becoming more popular. While many employers are reluctant to implement such a policy due to the loss of control over the employees’ work, others have found it to be beneficial and cost-effective. If your company is considering this option, a sound policy should be put in place that describes the procedure, the expectations and the responsibilities of the employee who telecommutes. The employees should sign off on the policy or enter a separate agreement with the company regarding their obligations while telecommuting.
Some provisions to consider are: eligibility requirements for employees to participate (such as 12 months of employment; full-time employees; performance criteria); use of (and company obligation to pay for use of) a home computer and home telephone; reporting requirements; time-keeping procedure; termination of the arrangement; workers compensation and OSHA obligations for work from home.

3. Temporary Shutdowns/Forced Vacation

The general rule of thumb is that a company can shut down for a short period of time if it is done correctly. Temporary shutdowns or furloughs for non-exempt employees raise minimal issues as there is no need to pay them for regularly scheduled hours if they are not actually worked (of course, collective bargaining agreements and relevant policies must be reviewed). It is not clear as to whether non-exempt employees can be forced to use accrued vacation during the shutdown with only little or no notice, but many employment lawyers concur that this is possible, especially if the vacation policy indicates that the employer can schedule vacation.
Exempt employees, however, can lose exempt status if they are not paid for the full week in which they work. If an exempt employee works any part of a workweek, then they are entitled to their salary for that workweek (with some exceptions). As a result, exempt employees subject to a week-long shutdown must be instructed to perform no work during the workweek, and this includes calling in, checking emails, corresponding or telephoning others, etc.
Note, too, that exempt employees cannot be forced to use vacation without “reasonable notice” before requiring the use of accrued vacation. This has been deemed to be at least 90 days or one full fiscal quarter, whichever is greater, of advance notice. The safest practice is to not force or require the use of vacation for any employee without 90 days advance written notice.

4. Hiring Freezes, Wage Freezes & Wage Reductions

Many companies have implemented hiring freezes. Employment laws permit this; however, if the company needs to make “exceptions” to the freeze, then such “exceptions” should be well-justified and documented (some companies create an “exception” form or the like which must be submitted to HR and/or upper management). Separately, salary freezes are becoming more common as well. The employer basically informs employees there will be no raises until further notice given the financial constraints. Again, companies are well advised to review policies, offer letters, contracts, collective bargaining agreements and any other documentation that might limit its ability to freeze salaries.
Wage reductions are also taking place on occasion across the country. However, they must be implemented consistently and fairly so that certain employees are not disproportionately impacted. Certain industries also have legally set minimum wages. Moreover, salaries for exempt employees must still meet the minimum salary requirements in order to maintain exempt status. Finally, as mentioned, policies and contracts, including collective bargaining agreements, should be reviewed prior to reducing salaries.

5. State programs

Most states offer programs to assist employers in dire need. One such program in California is the Employment Development Department’s “Work Sharing Program.” Under this program, eligible employers may reduce employees’ working hours and the affected employees receive partial unemployment benefits (the employer’s EDD reserve account is used for these funds, which means higher payroll taxes as the employer must make higher employer contribution rates to make up for the loss). For example, if a company has 100 full-time employees and wants to reduce the work week for all employees by one full day, there would be a 20% reduction in pay and hours. The employees would be eligible to receive 20% of their weekly unemployment insurance benefits.
At least two employees must be affected and there must be a minimum 10% reduction of the regular permanent (not temps) workforce and a minimum of 10% reduction of wages and hours.
California employers must fill out a Work Sharing Plan Application, which can be obtained from the EDD’s Special Claims Office. The EDD offers a “Guide for Work Sharing Employers.”

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