Leveraging Supplemental Unemployment Benefits to Retain Top Talent

Posted by Lana Mellis on Jul 2, 2024 11:27:07 AM

Introduction: Building a Strong Workforce
As business leaders, we understand that our success hinges not just on the business model, but on the people who drive our vision forward. A dedicated and skilled workforce is the backbone of any thriving organization. Retaining this talent is crucial, particularly in industries prone to high turnover and operational fluctuations.

The Hidden Costs of Employee Turnover
Studies consistently highlight that the cost of losing an employee ranges from several thousand dollars to twice the employee's annual salary. This underscores the critical importance of retaining key talent, a responsibility that often rests with HR professionals. The challenge is particularly pronounced in sectors like trade, construction, retail, customer service, and hospitality, where high turnover and business cycle volatility are common.

The Dilemma of Downtime
Operational downtime presents a significant challenge. HR management must decide whether to:

  1. Implement a salary continuation program, maintaining paychecks for hours not worked, or
  2. Cease pay during downtime, risking the loss of employees who cannot survive on unemployment pay alone.

Both options have significant drawbacks, either straining the company's finances or jeopardizing workforce stability. However, there is a balanced alternative that addresses both employee and company needs: the Supplemental Unemployment Benefit (SUB) plan.

The SUB Plan: A Balanced Approach
The SUB plan, originally popularized by automobile labor unions in the 1950s, allows employees to receive state unemployment benefits along with supplemental pay from the employer. This arrangement ensures employees can maintain their income during temporary layoffs without disqualifying them from unemployment benefits.

How the SUB Plan Works
Under a SUB plan, the IRS classifies supplemental payments as benefits rather than wages, exempting them from payroll taxes for both employee and employer. This reclassification allows for significant cost savings and increased employee take-home pay. For example, during a 12-week work stoppage, an employee earning $1,000 weekly can receive $400 from state unemployment and $600 in supplemental pay, maintaining their full wage.

Administrative Considerations
Despite its advantages, the SUB plan requires meticulous administration, including compliance with state regulations and regular communication with employees. Companies can manage this in-house or partner with third-party administrators to handle the complexities.

Conclusion: Retain Talent and Reduce Costs
For HR managers facing retention challenges due to operational fluctuations, the SUB plan offers a compelling solution. By ensuring a reliable income for employees during downtimes and generating cost savings for employers, the SUB plan supports workforce stability and organizational resilience.