There are four generic types of alternative work arrangements most companies use today. In actual use these programs have a wide variety of applications and combine some features of the generic programs. Overall, a review of the following four approaches will provide guidance regarding features that might be applied in a company. These four approaches, in conjunction with layoffs and other compensation cost-cutting measures, provide a number of ways to retain employees as productive and active members of a business, albeit at a reduced level of involvement and compensation. Following is an overview of the alternative work arrangements and their potential benefits and costs. (Discussion of alternatives as a cost-cutting choice was presented in Chapter 5.)
Job sharing and/or skill sharing involves reducing staff members to part-time status with the sharing of responsibilities and duties for a single job function. With such an arrangement it’s necessary for the job sharers to collaborate with each other to communicate progress on work that is shared, and also keep the job sharers informed of transactions and events that occur during each other’s “off time.” Job sharing can mean split days, split weeks, or any other combination that makes sense. Work can be accomplished on a common site or through telework arrangements (i.e., communications with the job sharer and the company site through networked computers, teleconferencing, and video conferencing). Table 8-1 summarizes the costs and benefits of job sharing.
Benefits to the company | Retention of human capital investments Continuity in key job functions by experienced staff Maintenance of important skill sets on the job |
Benefits to the employee | Income continuation at a reduced salary and maintenance of relationship with employer Ability to post for a full-time assignment Opportunity to learn new skill sets |
Costs to the company | Continuation of compensation at reduced level |
Costs to the employee | Reduction in salary |
Salary and benefits | Base pay reduced in proportion to reduction from full-time work |
Maintenance of benefits (at a reduced level if there is a different program for part-time status) | |
Where it works best | Any position or department |
Benefits to the Company. The greatest benefit of job/skill sharing is the retention of human capital. Every two job sharers include one employee who could have been laid off. These arrangements also allow for continuity of employment for staff even though the job assignments of the job sharers might be different from previous job responsibilities. In fact employees are placed in positions to broaden their skill base.
Benefits to the Employee. In the short term, the employee benefits from income continuation. Even at a reduction of up to 50 percent, the continuation of benefits is a major advantage to the employee and cushions the blow of reduced base pay income. In the long run, maintaining a relationship with the company has numerous benefits, including priority status on postings for full-time positions when they become available. There is also the benefit of remaining part of the company and keeping abreast of current events. Finally, there is the opportunity to learn new skill sets and broaden personal capabilities.
Costs to the Company. The company incurs the cost of compensation, benefits, and overhead for all employees currently at work. However, the base compensation is significantly reduced for the job sharers. The major short-term financial benefits accrue from the lack of severance costs. By eliminating one job (that is now shared by two people) the company reduces the total cost of one salary but not the benefits package. At the same time, the company does not incur separation costs, which can amount to the cost of benefits for one person for 1 year. These two cost items in effect cancel each other out during the first year.
Costs to the Employee. The obvious straightforward cost to the employee is a reduction in salary. There is also a change in status. There are potential feelings of shame for having lost a full-time position (even temporarily) as well as anger with the employer or the world in general. In addition, feelings of insecurity are driven by loss of income and unfamiliarity with a changed position that is thrust onto the employee. Of course, the alternative is the complete loss of one’s job, but people don’t necessarily act rationally in these situations. Consequently, this work arrangement is not for everyone.
Salary and Benefits. Salary is reduced by 50 percent for job sharers who are evenly splitting responsibilities. Beyond salary, numerous types of arrangements can be established that make sense for particular job functions. Work can be done on a common site or on two or more sites. Sometimes job sharers telecommute.
Dealing with benefits may be a challenge. Many companies require a minimum number of hours worked in a year for an employee to qualify for health and welfare benefits. If the job sharing arrangement takes time worked below the minimum and benefits are not available, then a major source of motivation for an employee to accept job sharing may be negated. Therefore, to establish job sharing (or other alternative work arrangements), it will be necessary to research and determine the accessibility of health and welfare benefits and provide them if at all possible.
Where It Works Best. Job sharing can work anywhere in an organization, and it can work at any level from the executive suite to entry-level positions. What is important is that the work can be split between two or more individuals in a reasonable way and that there is frequent and clear communication between job sharers.
Companies use contracting arrangements when there is a service that can be provided to an organization by an independent person, agency, or organization more economically than employing the resources directly. In addition, truly independent contractors must supply the services to avoid conflict with the legal status of a contractor versus an employee. For example, merely moving an individual from the company’s payroll to contract status does not necessarily establish a contracting relationship. The company would still have the responsibility of an employer, including offering all required benefit programs, payroll taxes, and so forth. However, contracting arrangements are reasonable for services in areas such as accounting, human resources, engineering, marketing, or any other function where specialized expertise can be externally supplied. The contractor must act as an independent business and keep financial records, reporting, and filing with state and federal agencies, including income taxes and sales taxes as applicable.
The appeal of contracting as an alternative work arrangement is that the employer can offer the former employee a chance to provide services and expertise on a part-time or hourly basis and the company maintains the use of the skills and capabilities of that employee. The former employee as an independent contractor can also offer services to other employers and agencies at the same time. Following is an overview of benefits and costs of this alternative work arrangement, which is summarized in Table 8-2.
Benefits to the company | Continuity of important services Maintenance of company-specific knowledge |
Benefits to the employee | Income continuation Maintenance of skills |
Costs to the company | Continuation of compensation |
Costs to the employee | Loss of regular employment status with the company Cost of running the contract business |
Salary and benefits | Termination of salary and change to contract arrangements Change in employment status that generally results in termination of employee benefits |
Where it works best | Specialized services that can be supplied independent from an employment relationship |
Benefits to the Company. The major benefits to the company are a continuity of services from individuals who have critical company knowledge. With a contracting arrangement, the company can reduce headcount yet have available the accumulated skills and competencies of specialists. However, the former employees must be motivated to continue providing services, and payment for their services must be competitive.
Benefits to the Employee. There are many benefits to the employee. Besides income continuation, the contracting arrangement is an opportunity to broaden skills. In effect the contractor can build a new career as a contract consultant to other companies in addition to the former employer.
Costs to the Company. The main cost to the company is continuation of compensation, although at a reduced level from the former total employee compensation costs. The actual pay arrangements can be quite different. For example, consider a marketing specialist with an annual salary of $60,000 and $15,000 in benefits for a total compensation of $75,000. If she becomes a contractor for approximately one-quarter of the time, or 10 hours per week, the cost to the employer would likely exceed $18,750, or 25 percent of former compensation. The total cost might range from $25,000 to $30,000 to cover overhead, the provision of government mandated benefits, and self-supplied health and welfare benefits.
Costs to the Employee. The former employee would receive lower total compensation from the employer if he or she worked as a contractor on a part-time basis. In addition, the former employee as a new contractor would provide all costs associated with doing business, including overhead expenses such as an office computer and telephone. (But these are tax deductions for the independent contractor.) The biggest expense would be for starting up the contract business.
Salary and Benefits. The change in status to contractor in almost all cases will result in termination of health and welfare benefits. The contractor supplies these benefits. This may be an insurmountable hurdle for some individuals who do not wish to set up their own business, supply benefits, and make their own reports to the federal and state governments.
Where It Works Best. Specialized services that require unique expertise are typically provided on a contract basis.
This work force arrangement is a new approach made possible by recent innovations in telecommunications technology. Work time and salary are reduced by up to 70 percent or more for employees whose skills are critical in the long term, but where short-term full-time employment is not economical. (See Table 8-3.) This staff is provided telecom equipment for their homes. They are told to check in and communicate via telework on a regular basis and are on call for short-term assignments or consultations. The employee is free to work elsewhere within the boundaries of a noncompetition agreement. This arrangement can be for an open- or closed-ended time period.
Benefits to the company | Retention of human capital and critical skills and competencies. |
Benefits to the employee | Income continuation (at reduced salary) Maintenance of relationship with the company Ability to post for a new assignment |
Costs to the company | Salary cost for an “on-call”employee Cost to set up and maintain teleworking equipment |
Costs to the employee | Not working in a regular job on a day-to-day basis Reduced income |
Salary and benefits | Continuation of base pay at a reduced rate Maintenance of benefits (at a reduced level if there is a different program for part-time employees) |
Where it works best | Knowledge workers |
Benefits to the Company. The main benefit to the company is the retention of critical skills during a slack work period. If the down period is expected to be less than 18 months, it is much more economical to retain skills in this fashion than to lay off the employee, experience short-term separation costs, and then turn around and expend more than a year’s salary to hire and train a new employee.
Benefits to the Employee. The furloughed employee remains a part of the organization at a greatly reduced level of activity. Through use of remote “teleworking” stations, the employee remains in touch via the company’s telecommunications networks. Usually this requires approximately a 20 to 30 percent time commitment. In this manner the employee keeps up to date on the progress of various projects and events. He or she also is on call to participate in projects requiring specific expertise or skill. When openings for positions become available, the furloughed employee is notified and has the opportunity to post for the opening. In addition, health and welfare benefits remain available as they were before the furlough began. These arrangements are generally for a specific period of time before they end or restart.
Costs to the Company. There are two types of costs to the company. First, there is the straightforward cost of salary at a reduced level and benefits. Second, telecom costs are required to maintain network communications. These latter costs can run from providing laptops for affected employees to setting up complete work stations in homes.
Costs to the Employee. The costs to the employee include reduced income for the period of time on furlough. In addition, the employer may require a formal written agreement that restricts certain types of employment (i.e., with a competitor) and confidentiality of proprietary company information for the length of the furlough. Furthermore, due to the change in employment status, the employee may be angry or embarrassed.
Salary and Benefits. Salary is continued at a significantly lower rate, but health and welfare benefits are maintained.
Where It Works Best. Furlough arrangements should be used for knowledge workers who have critical information or experience with proprietary methodologies. These are generally found in the information technology area but may also be part of marketing, manufacturing or engineering, or other functions in the company.
This work force arrangement enables staffing of strategic projects by employees with specialized skills on an “assignment” basis. (See Table 8-4.) With this alternative employees lose their regular job but not their employment. This relationship can be either full or part time, and employment becomes a series of project assignments. In effect, the employee’s role becomes one of in-house consultant.
Benefits to the company | Retention of critical human capital at a reduced cost when employment is less than full time Critical projects don’t fall by the wayside |
Benefits to the employee | Income continuation at reduced salary Maintenance of relationship with the company Opportunity to post for new assignments |
Costs to the company | Salary and benefits |
Costs to the employee | Previous job is replaced with assignment status and reduced income Long-term employment in jeopardy |
Salary and benefits | If the time commitment of the employee is reduced, the salary is reduced proportionally |
Benefits status remains the same unless time commitment changes employee to part-time status, triggering a benefits change | |
Where it works best | Where specific value-added projects can be identified |
Benefits to the company Retention of critical human capital at a reduced cost when employment is less than full time Critical projects don’t fall by the wayside Benefits to the employee Income continuation at reduced salary
Maintenance of relationship with the company Opportunity to post for new assignments Costs to the company Salary and benefits Costs to the employee Previous job is replaced with assignment status and reduced income Long-term employment in jeopardy Salary and benefits If the time commitment of the employee is reduced, the salary is reduced proportionally Benefits status remains the same unless time commitment changes employee to part-time status, triggering a benefits change Where it works best Where specific value-added projects can be identified
Benefits to the Company. This approach retains human capital for the company similar to furloughed net workers, but employees are placed on actual projects that involve greater time and salary commitment. Usually the employee works about 50 percent of the time and is assigned to a specific project requiring on-site involvement.
Benefits to the Employee. As with other arrangements the main benefits to the employee involve continuing employment, health and welfare benefits, and the opportunity to post for full-time assignments.
Cost to the Company. The main costs to a company are salary and benefits. The employee on assignment typically has a reduction in salary for an indefinite period.
Costs to the Employee. The full-time job is replaced by part-time assignments with reduced compensation and benefits. In addition, continuing employment is contingent on the actual temporary assignment. When work is completed, new assignments replace the completed ones, or the employee no longer remains in employment.
Salary and Benefits. Salary is reduced to a level commensurate with the time requirements for the assignment, usually 50 percent or less of a regular salary. Health and welfare benefits are provided.
Where It Works Best. Wherever there is a need for a special assignment with critical skills, temporary assignments are a viable alternative.