Texas Total Rewards Conference A Better Way to Manage Employee Transitions September 26, 2016

Agenda Two Sides to a Layoff Layoffs are Not Easy Why Offer Severance? Issues with Severance A Better Way to Manage Transitions Case Study Solution Highlights September 26, 2016

Two Sides to a Layoff Human Resources Employee Already dealing with day-to-day Tasked with handling layoff Doing more with less Layoffs are not easy Employee High stress Fair separation benefits Support after layoff September 26, 2016

Layoffs are Not Easy Emotional for both employee and employer Limited internal resources Communicating the separation Minimize legal risks Preserving public reputation Severance administration September 26, 2016

Why Offer Severance? Take care of employees Limit company liability Protect company reputation September 26, 2016

Issues with Severance Plans Benefits may be reduced Benefits may expire before former employee finds new employment May result in different benefits received by former employees Could be costing companies 45% (or more) of severance costs Can severance be a strategy? September 26, 2016

A Better Way to Manage Transitions What if a severance plan could… Be administrated for Human Resources? Ease the emotional impact of a layoff? Be designed to increase the value of the plan to former employees? Keeping them focused on working to reemployment Provide more benefits during their transition to reemployment Possibly extend weeks of benefits Could incentivize them to find reemployment quicker Help the company save money? September 26, 2016

A Better Way to Manage Transitions September 26, 2016

Case Study – The Challenge $5B media and publishing company Lost significant advertising revenue Wanted to lower operating expenses Restructuring planned Severance Logistics and Administration Downsizing 2,500 employees in 50 offices in 42 states September 26, 2016

Case Study – The Solution Transitioned from a severance plan to a Supplemental Unemployment Benefit (“SUB-Pay”) Plan September 26, 2016

Case Study – The Results By implementing a SUB-Pay Plan the company: Outsourced the plan’s administration Relieved Human Resources of the workload, burden and stress of severance administration Provided former employees with ongoing support Former employees received $1.28M in additional benefits Reduced its severance costs by 44.8% September 26, 2016

SUB-Pay Plan Solution Designed to assist employee’s transition to new employment Supplements receipt of state unemployment insurance (“UI”) benefits Exempt from employee FICA tax Exempt from company FICA, FUTA and SUTA taxes Paid to an involuntarily reduced workforce Payments paid periodically September 26, 2016

SUB-Pay Plan History Early 1950’s – first introduced Department of Labor Treasury Department Private sector companies 1956 – first IRS Revenue Ruling 1990 – latest IRS Revenue Ruling 2014 – Supreme Court rules in favor of IRS in Quality Stores v. United States case SUB-Pay Revenue Rulings remain valid September 26, 2016

SUB-Pay Plan Solution – Employee Benefits Gain 7.65% more benefit Steady income while transitioning to reemployment Possible reduction of income taxes from lump-sum severance May receive remaining balance outside of plan upon reemployment Company can reinvest portion of savings to extend weeks of benefits Support and assistance for length of plan September 26, 2016

SUB-Pay Plan Solution – Company Benefits Administration can be outsourced 7.65% savings from FICA tax exemption Exempt from FUTA and SUTA taxes Could save 45% (or more) of severance costs with coordination of state UI benefits September 26, 2016

Savings Example 500 Texas individuals $1,000/week of benefit for 10 weeks = $10,000 cash value FUTA/SUTA taxes estimated at 3% Texas state UI benefits = $465/week Example includes one week waiting period for state UI benefits All individuals complete the plan July 22, 2016

Savings Example Severance SUB-Pay Layoff Population 500 500 Payroll $5,000,000 $5,000,000 FICA $382,500 $0 FUTA and SUTA $150,000 $0 Payroll Taxes $532,500 $0 Unemployment Supplement $0 ($2,092,500) Total Cost $5,532,500 $2,907,500 Total Savings to Company $0 $2,625,000 Percentage of Savings to Company 52.5% Employee population gains $382K in FICA tax savings July 22, 2016

Highlights Former employee gains additional benefits Company can reinvest savings to extend weeks of benefits Relieves Human Resources of workload, burden and stress of severance administration Former employees receive ongoing support Former employees gain additional benefits Company reduces severance costs September 26, 2016

Thank you / Questions? Bryan Lihzis Todd Malouf President Business Development PO Box 394 PO Box 394 Norton, MA 02766 Norton, MA 02766 (617) 340-7760 (402) 850-2570 blihzis@subpay.com tmalouf@subpay.com www.subpay.com www.subpay.com September 26, 2016