Today’s rapidly changing business environment requires organizations to practice agility and skillful management to forge long-term success. Therefore, the use of just-in-time manufacturing and delivery has become a cornerstone business practice for companies committed to efficiency, profitability and continuous improvement.
Just-in-time is a strategy companies use to increase efficiency and decrease waste. Resources, supplies and materials are obtained only as they are needed in the production process, thus reducing the cost of holding inventory. Many companies take this one step further, employing just-in-time scheduling, where workers’ schedules are adjusted based on fluctuating manpower needs. Workers are treated similarly to any other production input under a just-in-time strategy; their services are utilized only when needed, to reduce the cost of holding inventory, or as it applies to workers, reduce the cost of wages during times of low or no production.
Additionally, by hiring part-time and freelance employees in this on-demand manner, employers have the opportunity to incrementally cut costs by removing healthcare coverage and other employee benefits. The popularity of these employment strategies are on the rise as more and more corporations are compelled by the available labor cost savings. In fact, the Freelancer’s Union predicts that at least 40% of the workforce will be freelancers in the next few years.
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Paradoxically, job and talent competition is indeed on the rise, and it would go to reason that a lack of benefits and income instability would de-incentivize any kind of employee loyalty. Presented with an opportunity to earn a more reliable livelihood elsewhere, workers would likely not hesitate to depart.
As employers look to have their workforce and compensation expenses be as streamlined as possible, there is a significant trade-off between having too many people on payroll than current production calls for, and the potential for attrition under just-in-time scheduling. The foundation of a just-in-time strategy is the ability to have resources available when needed, which becomes unworkable during a scramble to re-recruit and re-train an unprepared workforce as a result of high attrition. It is this very dilemma that has compelled many employers to search outside the box for a middle ground solution.
A middle ground solution
As employers navigate just-in-time strategies and struggle with optimizing the readiness of their workforce, some are getting more creative in their approach.
One solution gaining popularity is the IRS-approved Supplemental Unemployment Benefits (SUB) Plan. Established in the 1950’s labor union environment, this little-known payment structure has remained one of the best kept secrets of employee benefits, despite its many valuable, strategic advantages. Implemented in connection with changing work cycles and labor needs, a SUB plan allows the income of employees to be maintained during a period of furlough at a fraction of regular labor cost to the company.
As the name suggests, SUB payments act as a supplement to state unemployment benefits. An employee on furlough receiving these benefits would maintain 100% of their regular wages, funded partly by the employer and partly by the state. Additionally, like healthcare, the IRS recognizes retention payments made under a SUB plan as “benefits” rather than “wages,” making the payments exempt from payroll taxes for both the employer and employee. Therefore, the company-funded portion of the benefit is reduced both dollar-for-dollar by the amount of State UI the employee is eligible to collect and the FICA/FUTA tax obligation.
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A SUB plan implemented in conjunction with a just-in-time strategy can act as a valuable tool to retain a skilled workforce in an effective and efficient manner.
When considering whether a Supplemental Unemployment Benefits Plan could add value to an employer’s just-in-time strategy, it is useful to start by contemplating these two questions:
1. Does the company lay off its workers during downtime with no benefits and therefore face challenges with retaining a skilled workforce? Or;
2. Does the company continue to pay full wages during downtime and therefore see labor cost inefficiencies?
For a company that answers yes to either question, implementing a SUB plan can increase efficiency and establish a middle ground. The SUB plan structure provides financial security to employees during a temporary furlough, establishing trust and reliance on a steady income, while at the same time enabling a company to retain a flexible, skilled workforce at the right price.
A SUB plan empowers a workforce to be agile and optimized to deliver what’s required, while also preserving the company’s commitments to efficiency and the bottom line.
