Minnesota’s Alternative to Layoffs

04/02/2009 / Sejal Desai Winkelman

During the current economic recession, many Minnesota employers are faced with difficult decisions about laying off employees in order to sustain their business. Employers struggling with this decision must often consider the negative impacts of a layoff, including severance costs, loss of skilled workers, loss of morale among remaining employees, reductions in productivity, and many other long-term effects. Minnesota, along with approximately 15 other states, offers a Shared Work Program that can offer alternatives to employers faced with a layoff situation. Rather than laying off workers during down periods, the Shared Work Program allows an employer to maintain its employees, but reduce costs by decreasing the wages and hours for all or a selected group of employees. Under the Program, affected employees may receive partial unemployment insurance benefits to subsidize their wage loss while working reduced hours.

The following is an example of how the program can work: A firm facing a 20 percent reduction in business may consider laying off one-fifth of its workforce. However, under an approved Shared Work plan, that company could maintain its total workforce while reducing each worker's scheduled hours by one-fifth or 20 percent. Employees would receive a partial unemployment insurance payment equal to 20 percent of their individual weekly unemployment insurance award along with the income earned for the week under the approved plan. Thus, the employer can more equitably distribute the impact of the recession between its workers while the employee experiences a relatively minor reduction in his or her after-tax income.

However, not every employer may be interested in or benefit from the shared work program. Under the Minnesota Unemployment Insurance Law, an employee is not eligible for or entitled to unemployment benefits if he or she is performing 32 hours or more in employment services in a given week. Accordingly, a full-time employee with his or her hours and pay cut by one-fifth would not be entitled to any unemployment benefits in Minnesota and the employer would face no resulting adverse consequences of driving up its experience rating and resulting costs of an increased tax rate. These reduced hours arrangements can have short-term economic benefits to the employer as a viable alternative to layoffs.

While the Minnesota Unemployment Insurance Law does not require unemployment benefits be paid to any employee that performs 32 or more hours of work in any week, participation in the Shared Work Program may provide longer-term management and economic benefits to some employers. Despite the cost of unemployment taxes and the increases in experience ratings with the state unemployment insurance, employers may consider the Shared Work Program because of the following benefits of the program:

• Save jobs – Employers that stand to benefit greatly from this type of program are those with a skilled workforce that is important to its future growth. Employers with skilled workers may benefit from the program because it keeps talented employees from looking elsewhere for employment in reaction to reduced hours and pay.

• Maintain morale – By participating in the Shared Work Program, an employer can maintain morale, productivity and flexibility in the work place, which are often negatively affected after a layoff or reduction in pay.

• Retain long-term economic benefits – When the economic outlook changes, the employer is not saddled with the added cost of hiring and retraining workers lost as a result of layoffs or reductions in pay.

• Set up for quick recovery and growth – When the economy recovers, the employer is prepared to more quickly respond and take advantage of growth opportunities.

In addition, employers with already high experience ratings or those engaged in industries with high experience ratings may take advantage of the benefits of the Shared Work Program while limiting any effect on their experience rating and resulting tax rate, which is currently capped at 9.3 percent of taxable wages. High experience rating industries are classified as those that have historically had a high amount of unemployment, including:

• Residential, commercial or industrial construction, including general contractors,

• Sand, gravel or limestone mining,

• Manufacturing of concrete, concrete products or asphalt, and

• Road building, repair or resurfacing, including bridges, tunnels, and residential and commercial driveways and parking lots.

In the end, employers must balance its future goals and development with making sure the company remains viable in current tough times. Please contact an attorney in our Employment Law Department should you have any questions regarding whether your company may benefit from the Shared Work Program, the Program’s requirements, or how the Program works.