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Reserve Space for Rehires

HR Magazine, January 2000

Vol. 45, No. 1

No longer a taboo, employers discover the benefits of hiring former employees.

Actors Liz Taylor and Richard Burton made headlines when they did it. So did movie stars Melanie Griffith and Don Johnson. They married, split up, then got back together again.

The same thing can happen with employers and employees. And these days, a tight labor market has many companies, especially those in the high-tech sector, rolling out the red carpet for "rehires." In many cases, these employees are welcomed back with immediate restoration of seniority and benefits. Other employers impose waiting periods of a few months to one year.

Several years ago, most companies cited loyalty concerns in refusing to hire ex-workers. But with unemployment rates at historic lows—below 4.4 percent for much of 1999—employers are actively recruiting former employees and even taking steps to keep them happy.

"There's been a real change in the practices and attitudes toward 'boomerang' employees," notes Fran Engoren, who heads PricewaterhouseCoopers' organizational effectiveness and development practice. "In the past, [rehiring] was actively discouraged because of loyalty issues. That's totally changed."

John Putzier, a Prospect, Pa.-based speaker and consultant and president of High-Tech Net, the Society for Human Resource Management's Professional Emphasis Group for human resource managers at technology companies, agrees. "Employees are more in the driver's seat, and employers have to park their egos," he explains

But the trend may not be a bad thing for HR. In fact, some HR managers believe that rehires are more loyal to employers than other employees. "They tend to stay longer," observes Larry Lemmon, director of HR at Datatel Inc., a company in Fairfax, Va., that develops administrative software for colleges and universities. About 10 percent of Datatel's 370 employees are rehires, he says.

Of course, no one can force rehires to stay and, inevitably, some will leave again. The best HR can do, managers say, is to detect through interviews why the second time around is a better fit. Virginia Champney, HR manager at Karl Suss America Inc., a 120-employee semiconductor equipment maker in Waterbury Center, Vt., suggests asking, "How have you changed so that our company is good for you?"

Policies Vary

Studies documenting the extent of rehiring are hard to come by, but HR managers say it happens often enough that they have developed policies for how to restore the benefits of returning workers.

Richard Kinas, HR director for Kalamazoo County, Mich., says he was "dumbfounded" when a survey revealed that more than 100 of 1,000 county employees were rehires, about twice what he had estimated. The county revised its employment and benefits policies in August to clarify its continuity-of-service provisions.

Policies for restoring benefits to boomerang employees vary widely, according to HR consultants and managers. HR has discretion over vacation time, eligibility for health, life and disability insurance and other perks. Government rules dictate pension vesting and participation.

To develop a policy, managers should ask, "How do I use benefits within my HR strategy, and what's going on in my workplace?" says Gary Kushner, president of Kushner & Co., a benefits consulting firm in Kalamazoo, Mich. For example, companies with high turnover may take a more cautious approach than companies with a stable workforce.

"We tend to see a split down the middle. Some employers treat the employee as if they were new. Other employers count your previous service," Kushner says. Employers that adopt the former strategy—a policy that seems relatively rare—may do that to avoid favoritism toward certain employees or to save money on benefits, he adds.

A more common approach is to welcome ex-workers back with open arms, especially if they possess hard-to-find technical skills. The most generous companies return full seniority—that is, count all previous years of service to calculate benefits—on rehires' first day back on the job, regardless of how long they have been gone.

That's the policy at Complete Business Solutions Inc., of Farmington Hills, Mich. Many people leave for reasons unrelated to work, and the 5,200-person computer systems integrator simply does not want to preclude good employees from returning, explains N. S. Venugopal, vice president of HR.

But it's also common to permit a limited time after departure, generally a few months to a year, during which rehires can return and have their benefits fully restored. After this window, they are treated like new employees.

If ex-workers return to Karl Suss America within two years, they are reinstated with full seniority for vacation time, 401(k) vesting and other benefits, says Champney. After that, the deal is off. She explains, "Our industry changes quickly and our products change. If a person's been out of the industry more than two years, their skills aren't current."

Other employers may base their decisions on why employees left. For example, employees who resign from Lab-Volt Systems, a Farmingdale, N.J., company that makes technical training systems, can be hired back with full seniority within a month; those who are laid off get up to four months, says HR manager Ann C. Edwards.

Waiting to be Restored

Once rehired, employees may face a waiting period-typically, one year-before seniority for benefits is re-established. Why wait? "To minimize the potential for abuse," says Putzier. "You want to reward returning but also retention," especially at companies with high turnover.

An ex-worker hired within five years of departing Artesyn Communication Products in Madison, Wis., gets seniority—but not until a year after re-employment, says HR Manager Cheryl Hoffman. The idea is to make sure rehires stay on, and so far, no one has complained, she adds. The 160-person unit of Artesyn Technologies Inc. makes equipment for the telecommunications industry.

Some consultants say there is no reason to wait before restoring benefits. "To me, that sounds like punishment. If you have a policy to restore benefits, you might as well do it from Day 1," says Engoren of PricewaterhouseCoopers.

That's the reasoning at Epicor Software Corp. in Irvine, Calif. "People need benefits. If they lost them at their old company, we don't want them to be without them," says Cathy Akin, vice president of HR. Boomerang employees begin to accrue benefits, counting their previous service, on the first of the month after their rehire date.

Although it's legal, experts recommend against instituting different rehire policies for different jobs or divisions within a company. A standard companywide policy is not only easier to administer but can limit employee resentment, says Edwards. The simple rule of thumb: Don't make exceptions.

But what if an employer has a harder time finding engineers than secretaries, for example? Can it adopt more generous rehire policies for one group than another? Yes—if it's done for business reasons, not to discriminate intentionally, says Michael C. Lynch, an attorney in the Washington, D.C., office of Pittsburgh?based law firm Reed Smith Shaw & McClay.

The Family and Medical Leave Act of 1993 can also complicate benefits restoration for ex-hires. Under Department of Labor regulations, workers must have been employed for 12 months and worked 1,250 hours during the previous year to take the leave. If a rehire with a year or more of previous service quits after less than a year to take the leave, should employers credit the prior service for leave eligibility?

"All things being equal, I would tend to err on the side of crediting them," says Lynch, because the 12 months of service need not be consecutive.

The issue of balancing limited benefits, such as parking spots, between current and rehired employees is generally not a big deal, according to HR managers. Putzier recommends, "Your current employees should have preference. They're already there."

Sorting out Pension Rules

HR managers also must sort through a thicket of pension rules when a worker returns. The Internal Revenue code and related rules that pertain to private, tax-qualified pension plans (both defined benefit and defined contribution) are so complex that even lawyers have to look them up.

"The starting point is, what does your plan say?" says Dave Mustone, a partner in the D.C. office of Reed Smith Shaw & McClay. "You can be more generous [than the law requires], but you can't be less generous."

In general, employers must count all prior years of service for rehires' pension vesting and participation. They can—but don't have to—disregard this prior service if it occurred when the worker was younger than 18, when the company had no pension plan or before 1974 in certain circumstances.

Whether or not employers can disregard previous years of employment for pension purposes depends on how long employees have been gone and the "break in service" rules of the IRS. The rules generally don't apply to workers with any vesting. The same rules usually apply to both vesting and eligibility for participation in a 401(k) or other pension plan.

In a nutshell:

  • If a worker returns less than a year after leaving, all prior service must be counted toward future benefits.

  • If a worker returns after one to five years, all prior service can be disregarded, but only for one year after re?employment.

  • If a nonvested worker returns after five years, all prior service can be disregarded.

  • If a partially or fully vested worker returns after five years, all prior service can be disregarded, but only for one year after re?employment.

"The whole idea is to protect employees" while encouraging them to stay re?employed for at least a year, Mustone says.

Then there are the forfeiture rules. If partially vested workers leave and take the vested portion of their pensions with them, upon rehire they have a specified time to return that portion to their plans to recapture the part of the account left behind. This provision applies only to workers rehired within five years of departure.

Accentuate the Positive

Datatel prides itself on a culture where co?workers become friends, and managers stay in touch with former employees. Over the years, some of these employees have ended up back in the fold. Datatel even has a nickname for them: "retreads."

"They know the culture. They have relationships established in the company. They've been trained in the way we do things," says Lemmon.

Charles Fisher is glad to be back. The 35-year-old documentation manager left Datatel in 1995 after more than five years as a technical writer. He wanted to move up to a managerial role, but the company had no suitable openings. So he left for a job at a small startup nearby.

Eighteen months later, Fisher was back, this time in the type of position he had wanted originally. "The culture of the other company was different. Being a small startup, I thought I could hang with it, but I'm not a startup kind of guy," he says. Datatel was "more of a known entity to me."

Fisher had worked as a contractor for Datatel after he left and stayed in touch with his former manager. When he returned, he ran into many former co-workers. He even sat at his old desk. "In some ways, it feels like I never really left," he says.

Last year, he hired a former Datatel worker who had been gone for eight years.

And so it goes across the country. All things being equal, most HR managers say they would hire a former employee over an unknown candidate in a heartbeat.

A rehire is "a sure shot," says Venugopal.

Hiring a known quantity who can acclimate quickly to a job and an employer's culture is a powerful morale booster for other employees, HR managers say. Kalamazoo County's Kinas notes, "It says the county's a great place to work. People are checking out greener pastures and coming back."

The highest turnover is among workers with three to seven years of service, says Putzier. "They're young, freshly trained and easy to buy. Those are the people more likely to jump ship and then realize how good they had it before."

An ex?employee also costs less than a brand?new worker because higher benefits costs are more than offset by lower recruiting and training costs, experts say. There's no recruiting fee to pay, no ads to place. Lemmon adds, "They're ready to roll very quickly. A new person goes through lengthy training, formal and informal."

It's hard to quantify the savings of a rehire, but it's obvious that retention is better than turnover. The cost of replacing employees rises along with their rank and skills, according to a review of client data by PricewaterhouseCoopers, from one?half to as much as four times their total compensation (salary and bonus but not benefits).

Rapid growth practically requires rehiring at Complete Business Solutions, which has taken back about 25 percent of those who left during the past three or four years, says Venugopal. The availability of stock options—the company went public in 1997—and more than 30 locations in major U.S. cities make it easier to attract them, he says.

"We don't want all of them back," Venugopal adds. HR conducts "rigorous screening" of potential rehires to gauge their technical skills and the risk that they may leave again.

Carolyn Hirschman is a business writer based in Rockville, Md. She has been a journalist for more than 15 years, has written for a variety of business publications and has covered workplace issues since 1991.


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