Tuesday, March 31, 2009

Job Sharing and CA Work Sharing Unemployment Insurance Program

Job sharing programs have been around for many years. This type of work arrangement, where usually two people share one full time equivalent employment time slot, typically a 40 to 60 hour commitment, has come to my attention a few times in the last month or so. I was careful not to frame it as sharing one job as it is not necessary for it to be a share of a “job” or position. It merely means the sharing, by two or more individuals, of one employment slot (think of it as a labor budget item) that generally equates to one full time salary and related benefits.

The challenging economic environment we face is the driver causing this work arrangement to be discussed with more frequency lately. There are a few concepts I’d like to address…one being “job sharing” which I’ll discuss first. The other is California’s “Work Sharing Unemployment Insurance Program” which I will address later in this article. The main difference between the two is that the latter provides for unemployment benefits for the portion of the full time position being cut back by the employer (e.g. cutting back from a 5 day work week to 4 days to save payroll costs).

I don’t think job sharing is generally a viable option in the field. My interest in researching this topic was driven by a desire to help contractors keep their office personnel intact through this down cycle and to expand the possibilities for office personnel, and their employers, even in the good times! If the contractor could divide office responsibilities that normally take 40 hours or so per week to accomplish into two (or more) pieces, this could provide for many benefits for all parties concerned including work/life balance and retention of income for employees and reduced business costs (including

I see job sharing as a potential win-win for both employer and employees. There are many reasons job sharing can make sense including offering a better work/life balance for employees. It can also help to keep more people employed and also possibly get the best from everyone in achieving common objectives required of a given position. Other benefits for employers include:

1) Each employee may be better rested, focused and better managers of their time improving efficiencies
2) The division of responsibilities could allow for leveraging each job sharer’s strengths while mitigating any weaknesses
3) Happier employees as they can tend to their personal lives more easily
4) Less time off for dentist appointments and the like as they can do on their personal time easier during the week
5) If there is a short term surge in work in the office, the existing human resources are more easily expandable as hours can be ramped up to cover those spikes in work
6) Can reduce overtime costs as fewer workers will work greater than 40 hours per week

An often cited downside to job sharing programs is the potential loss of benefits. Many employers use a 32 hour per week minimum required to qualify for employee benefits such as health insurance, 401(k), etc. There are many ways to approach this issue although, as always, it is important to be careful how you as an employer deal with these issues as unintended consequences could result (setting unwanted precedents, etc.). A policy should be established and followed for job sharing programs including employee benefits issues. Sometimes an employee may have a benefit deemed important to him or her through another family member (health insurance being an obvious example) so the issue is mitigated. If one of your job share employees who is in the job share arrangement waives the benefits, perhaps consider allotting those benefits to the job sharer who does not. Again, be very careful as circumstances could change (what if the spouse who is providing the health insurance suddenly gets laid off?). As with everything, consult with experts in order to better understand and comply with all the laws and regulations.

Consider holding an office staff meeting and discuss the possibility of a job sharing program. You may be surprised at your employees’ willingness, for a number of reasons, to be part of such a program. There seems to be a fear on the part of employees actually desiring this type of arrangement to ask for it. Chances are very good that your company has never had such a program in place. You may have never even considered it and/or think it may not a workable arrangement. The environment and office culture may be prohibitive factors for any of your employees to ask for such an arrangement. Some of them may want more time with their children, or grandchildren, or other personal reasons. If you, driven perhaps by today’s current economic climate, raise the issue during a staff meeting, you may find that you have a few people willing to get involved in the arrangement providing benefits to you, as the employer, you never realized were possible.

Another viable option to consider is California’s “Work Sharing Unemployment Insurance Program” which needs to be applied for. These “work sharing plans” are approved for a six month period. Although this program appears to market itself as a solution for short term market downturns, I have heard that consecutive six month plans have been approved for employers. The way the program basically works is by pro rating unemployment benefits for workers in the program to mitigate the lost income from reduced hours. In order for a plan to be approved by California, the employer must apply this program to “at least 10% of it’s regular work force or a unit of the work force” with at least 2 employees participating in the program. The example provided by the Employment Development Department (EDD) is that of an employee reduced from 5 days down to 4 days. The employee would be eligible to receive 20% of his or her unemployment benefits. At the same time, the employer should understand that there will be an impact on the company’s unemployment reserve account which could impact the unemployment insurance tax rate in the future. The net result is still positive for the employer both financially in terms of reduced payroll costs and intangible positives in terms of retention and morale while avoiding the costs of re-hiring, re-training, etc. when business improves.

I recommend consulting with a Human Resources professional as well as a labor law attorney to ensure compliance with all rules and regulations. SingerLewak will be conducting a seminar for business owners addressing various HR issues on May 5, 2009 at 4PM in our Irvine office. The workshop will be led by an HR specialist as well as a labor law attorney. I have asked that these arrangements be included in the discussion. Contact me if you would like more information.

Useful Links

For more on the CA Program http://www.edd.cahwnet.gov/pdf_pub_ctr/de8714bb.pdf

For the CA Program Application

Sunday, March 15, 2009

State of the Construction Industry - A Surety Broker's Perspective

By Michael Strahan CCIFP
KPS Insurance Services

As most of us have experienced over the past year the financial crisis has had a significant impact on the construction industry. With what seems like the demise of residential construction, a significant slowdown in commercial construction, and state budget issues impacting public works construction, the industry is facing significant challenges that we have not seen in some time.

As a result of the financial crisis and the impacts on construction, we have seen a change in the makeup of bid lists. Larger construction firms, even some national firms, have been bidding on work that in the past would have been considered too small to pursue. This could be due to the fact commercial project pipelines have been drying up and large firms are finding gaps in backlog. Conversely, we have seen smaller construction firms trying to bid projects that are probably larger than they would generally consider routine. Some of these firms are trying to elevate away from heavy competition. And lastly we have seen significant numbers of residential firms that never pursue public works projects coming over and bidding as well. As a result we have heard of pre-bid meetings having in excess of one hundred firms attending and it is not unusual to get bid results with more than thirty bidders.

We have also seen a significant change in the make-up of backlogs. Generally speaking, most backlog reports have become much more concentrated. We rarely see firms with large backlog reports of work in various stages of completion. It is not unusual to now see a construction company’s backlog being made up mostly of four or five projects. This naturally has led to a concentration of risk and a lower months in backlog ratio. Months in backlog measures how many months of work a firm has on hand at any one time based on historical, average monthly revenues recognized. One bad job today can have a much larger impact than what was historically the case.

Sadly, the surety industry is also to blame for part of the current competition problem. With so many construction firms coming to the public work environment they need to secure bonds. While some of these firms are financially strong and have had prevailing wage experience in the past, many do not come with prior experience or the financial strength to learn the hard way. Many of these firms need to be reviewed more stringently for credit than they are currently being evaluated. As a result, some of these construction firms are hurting the overall marketplace by taking work too cheaply. They will likely encounter financial hardships at some point in time if they are securing multiple jobs near or possibly below cost. Meanwhile, responsible bidders are not getting work which is also impacting their ability to run operations normally.

In addition, it is understood the stimulus package will include changes to the small business administration bond guarantee program. This change will increase bond guarantee limits on projects from two million dollars up to five million dollars. While this is a noble cause to help small businesses, it will also cause an increase in competition on larger projects by less qualified firms.

With increased competition for less work, profit margins have been decreasing. Naturally with a decrease in margins the overhead coverage ratio has also been decreasing. The overhead coverage ratio measures how many months of general and administrative costs are being covered by existing work on hand. All in all construction firms these days are more exposed to potential financial hardships due to concentrations of risk, lower margins, and simply less work to cover fixed costs.

With all the changes in the construction industry, it is inevitable that certain things will occur. We have already seen an increase in filings of stop notice and liens. It seems as if the ability to secure change orders, whether a general to owner or subcontractor to general, is becoming more difficult to secure. Payments appear to have also slowed, again whether from owner to general or general to subcontractor.

We will have construction failures most likely by the second half of 2009, definitely during the first half of 2010. In concurrence with construction failures, the surety industry will also begin to have an increased frequency in losses. While these are not good things the overall result may be somewhat healthy. Hopefully the strong construction firms survive and market competition starts to return to a healthier balance. The surety industry, with an increase in losses, should also tighten underwriting standards. This should further help limit bidders on jobs to more qualified firms.

A complete wildcard at this point in time is how and when the pending stimulus package will impact the construction industry. Conceivably when the federal government passes the stimulus package and states get assistance with budget deficits via government loans, more construction opportunities should present themselves. With the infrastructure spending the federal government wants to support, other construction related opportunities tied to green and alternative energy construction, and hopefully the ability to sell local municipal bonds again the number of opportunities should increase. This again will hopefully lead to less competition on projects as more work will be on the street to be bid.

While the times are clearly tough right now we do see some light at the end of the tunnel. We are hopeful more work will hit the streets in the near future. Coupled with less competition due to construction failures, surety industry tightening underwriting standards, and with a hopeful return of the real estate market, we can get back to a more traditional list of bidders and profit margins in the very near term.

Fact -

States are facing a great fiscal crisis. At least 46 states faced or are facing shortfalls in their budgets for this and/or next year, and severe fiscal problems are highly likely to continue into the following year as well. Combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated to total more than $350 billion.

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