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

2. 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

3. 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

4. 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

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

6. 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

7. 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

8. A Better Way to Manage Transitions
September 26, 2016

9. 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

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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. Thank you / Questions?
Bryan Lihzis Todd Malouf President Business Development PO Box 394 PO Box 394 Norton, MA Norton, MA (617) (402)
September 26, 2016