After Downsizing, Gauge Value of Outplacement Aid

Outplacement services can burnish your brand and reduce litigation risks

By Joanne Sammer Jun 2, 2016
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When downsizing or restructuring with a reduction in force, many employers offer outplacement services to departing workers, which can aid the employees and the employer. Helping laid-off workers find new jobs can have a positive financial effect on the company and yield other benefits that are more difficult to quantify.

But if employers are to realize these benefits, they need to measure the impact of offering outplacement assistance and apply these metrics to gauge outplacement vendor results.

Consider the Tax Implications

Offering outplacement services can have significant tax benefits for employers. “If people are not getting new jobs, it will be felt in the cost of unemployment insurance premiums,” said Dan Davenport, senior vice president of operations and finance for outplacement provider RiseSmart in San Jose, Calif.

While the federal unemployment tax rate is consistent, state unemployment tax rates go up or down within a state-specific range, based on the employer’s experience rating: The larger the number of former employees who claim unemployment benefits, and the greater the total amount of those benefits, the higher the employer’s state unemployment tax rate will be.

Employers with the lowest experience ratings can save a significant amount of money, depending on the regulations and the unemployment tax rates of the specific state.

“The HR and tax departments don’t necessarily talk to each other as a rule and may not see how poor outplacement is impacting unemployment premiums,” said Davenport. “This is a somewhat complicated calculation and it can be hard to get a clear, concise answer to these questions.”

Given the financial stakes involved, HR executives would be well-served to speak about this with their organization’s tax, accounting or finance department. The focus of this discussion should be on understanding the organization’s current unemployment experience rating and the potential impact of faster outplacement on that rating—especially if future workforce reductions are being planned.

Benchmark Results

With relevant tax information in hand, HR managers can more easily weigh how the cost of separation packages, including severance pay and outplacement services, might help avoid the potentially greater cost of higher unemployment tax rates. For instance:

*Severance payments can delay employee eligibility for unemployment benefits. *Outplacement services can help pay for themselves if they are able to assist employees in finding a job faster than they might on their own, ideally before severance pay runs out.

To gauge how much impact outplacement services might have on unemployment tax experience ratings, HR executives should press providers for concrete benchmarking data on employee landing rates. Landing rates indicate how long it takes for individuals to find a new job using these services.

If possible, this data should be broken down by position, industry and location. The U.S. Bureau of Labor Statistics provides data on duration of unemployment that can be a good starting point for benchmarking outplacement success.

“Service-level agreements can also include performance expectations for the vendor,” said Charina Flores, vice president of HR for the Barbelo Group, an HR consulting firm in Seattle. Beyond landing rates, performance expectations can include how soon the vendor will contact employees, the timing of key milestones in the outplacement relationship and the specific services to be provided to each employee.

For example, because individuals’ resumes and social media profiles are so important in the job search process, vendors could be held accountable for completing those parts of the process as quickly as possible.

Employers should also consider what outplacement services are available free of charge before hiring a vendor. “Individual states usually offer free services that are often very similar to what is provided by outplacement vendors,” said Flores. “Therefore, employers can push vendors to differentiate their services from those free services.”

It’s a Small World

There are other reasons for offering outplacement services that are difficult to quantify but important nonetheless.

Reputation and brand. In an age when current and former employees can rate their employers on sites like Glassdoor, treating people well has never been more important to an employer’s brand. While laying off employees is an unfortunate though sometimes unavoidable situation, employers can mitigate any damage to their reputations by doing what they can to help laid-off employees land on their feet.

Litigation risk. Outplacement assistance has the potential to minimize the chances that a laid-off employee will sue the employer. The Federal Reserve Bank of Chicago published a study projecting that a 1,000-employee organization laying off 100 employees could avoid about $1.4 million in wrongful termination lawsuits by offering strong outplacement services to those terminated employees. While that amount may seem high, the savings from avoiding even one such lawsuit can be considerable and employees who quickly find new opportunities are less likely to sue a former employer.

Future business partners. Laid-off employees working in the same field or industry could become future clients, customers or business partners. If an employer helps former employees move on to new jobs, that organization is more likely to maintain a positive relationship with those employees for years to come.

Joanne Sammer is a New Jersey-based business and financial writer.

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