Round 2: Alternative Work Arrangements

“Well, I’ve pared $5.77 million off a $15.95 million problem,” the manager concludes. “I still have a little more than $10 million to go!” he agonizes. The second round requires that the manager look for alternatives to traditional employment that will allow him to get compensation costs out while retaining the mission-critical talent he will require to meet his division’s business objectives. He lists some possible alternatives (described in detail in Chapter 8):

1. Job/skill sharing . “Surely there is some staff who would be willing to share a full-time employment (FTE) slot. Think of two software engineers, as an example,” he ponders. “Each has a salary of $55,000. If both were willing to share one-half of a job, I could shave $55,000 off $110,000 in salary cost and still retain the benefit of both for their expertise.” There are several practical considerations to make such a work arrangement, however. First, how many people would want to share a job? It isn’t something a company can force on people. It takes people willing to cooperate with others and share joint accountability for results. In addition the manager will have to prepare department heads and supervisors for managing the arrangement so it does not interfere with the division’s work.

2. Contracting arrangements. The manager has another thought. “We have any number of technicians and engineers who are great troubleshooters, real aces. But we can’t justify full employment. We really don’t have that many problems all the time. But when we do have a problem, we need help—and fast. There are probably people who would be willing to work on their own as independent contractors. A number of managers have already told me of many engineers who are thinking about going out on their own. They could contract back to us. We’d be their first major client, and they would be free to add other clients as they see fit as long as there are no conflicts of interest.”

   He adds, “It won’t be a free lunch. We’ll have to pay a higher hourly rate in consulting fees than we’re paying in salary right now. Also, there may be some minor severence costs such as payment for accrued vacation. But we won’t have the benefits cost, and we will be free to use as little or as much of their time as we need.”

   There’s another consideration here, he knows, remembering an earlier conversation with the corporate human resource officer. He notes, “The IRS has already cracked down on us for abusing contracting. Just calling someone a contractor does not remove that person from employee status, absolve us of our duty to pay social security taxes, and withhold income tax. We’ll have to be careful to make sure that people who go on contract will truly be contractors in the eyes of the law. The contractors have to be independent of us. That means they supply their own tools. They work independently of the company. They are not under the direct supervision of our managers. Finally, they are free to take on other clients.”

3. Offsite Net workers . This is something I could combine with job and skill sharing, he surmises. “We already have a virtual private network (VPN) in place.” He decides that he should try to find 30 people who would be willing to reduce their time on the job by one-quarter and work from home.

   In addition he knows that if he equips those going part time with telecommuting equipment (laptops, distributed network software, high-speed cable access), he can free office space. “If I could get rid of half my space, I would save a great deal in lease costs. Unfortunately, leases are extremely complex to change.”

   Reducing leased space takes a great deal of lead time and depends on the timing of the lease itself. Doing something may take the discretion of corporate staff and is beyond the manager’s immediate control. Although it’s a good idea, the manager doesn’t have the time to deal with this solution now.

4. Temporary assignments . Finally, a fourth possibility is considered. “We must have some people who are working on critical projects. For example, managers have told me that they are upgrading systems software. Even if we can’t justify full-time employment for them, perhaps they would be amenable to working on the projects to completion with no guarantee of continued employment after their conclusion. We could adopt a wait-and-see posture, hoping to find something for them at that time. All of these are great ideas,” he notes, “but I wonder how much they cost to implement?” He makes a list of each alternative work arrangement and considers the benefits in terms of costs saved and the cost of implementing the alternative. (Table 5-2).

The manager produces a spreadsheet to capture the overall cost reduction potential of the four alternative work arrangements. The spreadsheet appears in Table 5-3.

He believes that if he can find 50 people, at an average salary of $55,000, who would be willing to share work for the year, he can reduce salary costs by $1.375 million this year. In addition he hopes to find 20 staffers who could work on contract to accomplish specific mission-critical services. The net benefit in cost savings for shifting to contractor status would be $540,000 (the $1.54 million in total employment costs—salary plus benefits saved—less the estimated $1 million the manager will pay in consulting fees when the former employees contract back to the company).

Table 5-2: Cost/Benefit Considerations of Alternative Work Arrangements

Alternative Work Arrangement	Cost Savings (Benefit)	Cost
1. Job/skill sharing	Proportion of FTE salary	Negligible
2. Contracting	Proportion of FTE salary and benefit obligations	Additional cost of salary rate (and minor severance costs such as accrued vacation time)
3. Offsite Net workers	Real estate savings and proportion of FTE salary (if working part time)	Cost of telecommuting equipment and start-up
4. Temporary assignments	Proportion of FTE salary	Negligible

Table 5-3: Cost/Benefit Analysis of Alternative Work Arrangements

Alternative	Comment	No. FTEs	Total Salaries	Impact	Cost to Implement	Net Cost Reduction
1. Job/skill sharing	Save 50% FTE salary	50	$2,750,000	$1,375,000	$0	$1,375,000
2. Contracting	Save 100% of annual total compensation (salary plus benefit) of $77,000. Pay a contracting fee.	20	$1,540,000	$1,540,000	$1,000,000	$540,000
3. Offsite Net workers	Reduce 30 people to 3/4 FTEs. Introduce telecommuting.	30	$1,650,000	$412,500	$30,000	$382,500
4. Special projects	Place 10 employees on half time and assign to specific projects.	10	$550,000	$275,000	$0	$275,000
	Overall net cost reduction					$2,572,500

He further calculates that putting 30 employees on 75 percent of an FTE and having them work from home will save an additional $382,500 in net compensation costs savings. This is $412,500 in salary costs, less $30,000 to implement, for a net savings of $382,500.

Finally, he expects that the company can place 10 people on special projects at half time—a move that would save an additional $275,000.

“Here’s how I can pare an additional $2.57 million,” notes the manager, “and still get to hold on to people. Granted, I’ll have to put some people on part-time work. But I’m getting to my cost goal,” he reflects. “If I can get $5.77 million in Round 1 and another $2.57 million, that’s $8.34 million of a $15.95 million problem. Now I’ve got $7.6 million to go!”