Workshare – Reducing Your Payroll Costs without Layoffs

Massachusetts employers can benefit from WorkShare, a program established by the Department of Workforce Development to avoid layoffs.  This program is designed to allow companies to reduce payroll costs when experiencing a temporary decline in business.

Layoffs are inevitable for a permanent business downturn, but WorkShare is a smart alternative in a temporary downturn.  WorkShare permits companies to reduce the hours employees get paid (including salaried employees) and allows the employees to collect unemployment insurance benefits for the lost hours.

In addition to reducing payroll costs, companies will also benefit from…

1.      Keeping skilled/trained employees

2.      Maintain their valued workforce

3.      Avoid disruption in operations

4.      Maintain productivity

5.      Remain prepared for future business growth

Clearly, a smart downsizing strategy that leaves the company poised for growth.

How WorkSharing Works

Your workers avoid layoff. While working reduced hours, they will be able to collect unemployment insurance benefits as well as their reduced wages.  During their participation in WorkSharing, your workers receive a percentage of their regular wages. If they work 80 percent of their regular workweek, they receive 80 percent of their salary.

The workers will receive unemployment benefits in addition to their reduced wages. Their unemployment benefits are a percentage of their benefit rate equal to the percentage of the reduction in their hours. For instance, if hours and wages are reduced 20 percent, workers are eligible for 20 percent of their unemployment insurance benefit rate. Each worker’s benefit rate is calculated individually based on past earnings.

Workers will also receive a percentage of dependency allowance under certain conditions. An allowance of $25 per dependent child is available for workers who are the whole or main support for any qualifying children.

Under WorkSharing, an employee whose regular work hours are reduced 20 percent and who has dependent children, would receive 20 percent of the regular dependency allowance, along with the 20 percent of their unemployment insurance benefits.

How Do You Develop the Right Plan

The key to a successful WorkShare plan begins with a detailed cash forecast/strategy.  Managing a temporary downturn requires reducing or eliminating the depletion of cash from the business during the downturn period.  WorkShare is a powerful tool for reducing payroll costs but WorkShare alone is not a strategy.

WorkShare is a dynamic program that allows you to group employees and WorkShare these groups at different rates.  To calculate the benefit of a particular WorkShare plan in your cash forecast, we suggest setting up your monthly payroll budget with the following three sections.

First, is your basic employee information including name, department normal hours, pay rate, along with the weekly, monthly and annual gross pay.

Second, create a column for the WorkShare percentage for each month.  This will allow you to identify a WorkShare percentage for each employee for each month.  Remember, employees are put into groups and the groups are assigned a WorkShare percentage ie: 80%, 60%, 40% etc.  These percentages are the percent of their normal pay that they will receive from the company.  Therefore a 60% rate indicates that the employee will receive 60% of their normal pay and 40% of unemployment insurance benefits.

Finally, create a monthly compensation for each employee.  This is simply the multiplication of the employee’s monthly compensation multiplied by the respective WorkShare percentage for that month.

Now you have a payroll model that can be altered based on a change in strategy.  There are a few key points to remember when developing your WorkShare plan.  First, although you can change an employees WorkShare percentage as you go, it is best to keep these changes to a minimum.  Second, you will need to comply with all the WorkShare requirements including the employee grouping requirements.  Third, all layoffs must be complete before beginning a WorkShare plan.  If you layoff an employee in the middle of your WorkShare plan, your plan will immediately be terminated.

Creating an Exit Strategy

Exiting a WorkShare plan is as simple as terminating it as of a specific date.  Companies with a production process may want to change this to a gradual process.  A gradual exit strategy would be to bring employees back to 100% employment at the first stage of the production process.  Once inventory passes through the first process and is now available to the other departments, then you can bring those departments to 100% as the demand for that work-center is created.

Contact Us

Let's get started today–your business will thank you.