EI program helps employers avoid layoffs

Work-sharing agreements can ease financial burden on employers, workers as recession drags on

Essar Steel Algoma, a steel manufacturer in Sault Ste. Marie, Ont., counts manufacturing, automotive, construction and energy companies among its customers. As the economy started to take a turn for the worse last year and the credit crisis heated up, demand for steel began to decline.

“When those sectors are negatively impacted, so too is steel. We are a primary supplier to them and we are not immune to the current economic situation,” said Brenda Stenta, a spokesperson for Essar Steel Algoma.

As a result, the company started to look at ways to cut costs and keep people working. It stopped outsourcing and instead used employees to work on special projects. It also offered retirement incentives, curbed discretionary spending and eliminated overtime.

Despite the success of these efforts, including 143 employees who took early retirement, the market continued to worsen and the company had to look at additional cost-savings measures, said Stenta.

It approached its two unions, United Steelworkers Locals 2724 and 2251, about entering into a work-sharing program where employees would work 32 hours a week instead of 40 and receive employment insurance benefits for the eight hours of lost work. The program, administered through Service Canada, was introduced in the early 1980s during the recession that saw the jobless rate hit 13 per cent.

Work-sharing agreements, which must be approved by both employee and employer representatives and by the Employment Insurance Commission, provide income support to EI-eligible workers who are willing to work a reduced workweek on a temporary basis to avoid layoffs when there is a reduction in work that is beyond the employer’s control.

Local 2724, which represents salaried employees, agreed to the arrangement, with 54 per cent of the 600-member local voting for it. The arrangement began on Feb. 8 and will last 26 weeks. The company will have the option to extend it by 12 weeks if all parties agree. Through EI, these employees receive 55 per cent of their allowable income, or $89, for the day they don’t work, which works out to about a 12-per-cent pay cut.

“We’ve been working very hard to keep people employed and working during these difficult times and the flexibility and spirit of co-operation (Local 2724) demonstrated has been phenomenal and, in turn, we’ve been able to avoid layoffs for this group for the foreseeable future,” said Stenta.

However, members of Local 2251, which represents 2,700 hourly workers, voted against a work-sharing arrangement and so far about 180 of these workers have been laid off, she said.

Rogers offers alternatives

Rogers Publishing in Toronto, which employs about 800 people and publishes 70 magazines, offered employees the opportunity to take a four-day workweek, with a corresponding 20-per-cent cut in pay, for 11 months, as a way to cut costs.

“It’s purely a voluntary program,” said Suneel Khanna, senior director of communications at Rogers Publishing. “We were hunkering down for what we knew would be a tough year and it was one innovative idea that we implemented as part of a cost-saving initiative.”

The program, for which employees had to apply by the end of January, was also a way for the company to offer employees more flexibility and differentiate itself as an employer.

“We know there are people out there who would like to take that type of work arrangement on,” said Khanna. “You may initially come at it as an idea to implement cost savings but in the end it ends up being about attracting top talent and giving people an incentive to want to work for a company that offers something like this as opposed to a company that doesn’t.”

A “small percentage of the workforce” signed up for the reduced workweek and Rogers Publishing isn’t planning any layoffs as it is “right-sized at this time for the current economic reality,” said Khanna.

Past lessons

Past recessions can provide guidance for employers looking to survive the current recession, said Bobby Siu, president of Infoworth Consulting and an instructor of public policy at York University in Toronto.

“There are different kinds of options that organizations have adopted before and we’ll probably see again,” said Siu.

The most famous is “Rae Days,” he said. The unpaid days, named for former Ontario NDP premier Bob Rae, were forced on Ontario public sector workers, including teachers and nurses, during the recession in the early 1990s.

While the Rae Days were wildly unpopular among public sector workers, it was a pretty good option to help the government survive the recession, said Siu. However, Ontario has no plans to reinstitute the unpaid days, Finance Minister Dwight Duncan has said.

Another option employers, especially those in retail, might turn to is reducing part-time hours from about 25 hours per week to 15, he said. In manufacturing, it’s common for plants to shut down for one week or even more than one month.

Whatever the initiative, proper employee communication is critical to its success, said Siu. A memo or an e-mail announcing a reduction in work hours to save money won’t go over well with employees, he said. Instead, management should hold a series of small staff meetings to inform employees of the organization’s financial situation and the solutions management has been considering.

“Usually you just have to take the employees along the path of developing different options,” said Siu.

How it works

Program averts temporary layoffs

Work-sharing is designed to help employers and workers avert temporary layoffs. This measure provides income support to workers eligible for employment insurance benefits who are also willing to work a temporary reduced workweek when there is a reduction in the normal level of business activity beyond the control of the employer.

Work-sharing agreements must be approved by both employee and employer representatives, and by the Employment Insurance Commission, and can range from six to 26 weeks with an extension of up to a maximum of 38 weeks. In the recent federal budget, it was announced the maximum will be extended to 52 weeks.

Under a work-sharing agreement, employees are eligible to receive EI benefits for the days they are not working, to a maximum of $413 per week, based on the employees receiving 55 per cent of their insurable earnings. There is no EI waiting period to be served under work-sharing benefits.

Work-sharing may warrant consideration under the following circumstances:

• There is a reduction in the normal level of business activity that is beyond the control of the employer.

• This shortage of work is expected to last for a minimum of six weeks to a maximum of 26 (with the possibility of one 12-week extension to a maximum of 38 weeks).

• The work-sharing agreement allows the employer to stabilize the workforce, to retain trained employees and to avoid costs associated with recruiting and training new employees when business returns to normal levels.

• The employer has the agreement of workers to participate.

• The employer is able to demonstrate, through the development of a recovery plan, that a return to normal hours of employment within a maximum of 26 weeks is a reasonable expectation.

• The employer must ensure the reduced workweek is not more than three days and not less than one day.

Source: Current and Critical Issues in HR Management, a new monthly white paper series that takes an in-depth look at HR issues, published by Canadian HR Reporter. For information about subscribing, visit www.carswell.com.

Work-sharing earnings

Effect on different income earners

Under work-sharing arrangements, the government pays 55 per cent of the maximum insurable earnings for the time employees agree not to work in order to help the company save money and avoid layoffs. The maximum insurable earnings for employment insurance are $42,300 (or $163 a day). Below are estimates of how much people at different income levels would earn on a straight four-day workweek and on a four-day workweek with EI work-sharing benefits.

Worker earning $18,200: A person working full time and earning minimum wage in Ontario ($8.75 an hour)

Four-day workweek: $14,560

Four-day workweek with EI work-sharing (55 per cent of $70 for day not worked): $16,562 (nine-per-cent pay cut)

Worker earning $42,000: A person earning the average industrial wage in Ontario

Four-day workweek: $34,112

Four-day workweek with EI work-sharing (55 per cent of $163 for day not worked): $38,773.80 (nine-per-cent pay cut)

Worker earning $85,000: A person earning twice the average industrial wage in Ontario

Four-day workweek: $68,120

Four-day workweek with EI work-sharing (55 per cent of $163 for day not worked): $72,781.8o (15-per-cent pay cut)

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