Managing the Hidden Costs of RIF Churn

Article contributed by UTCA, Unemployment Tax Control Associates

Many organizations are struggling to get through these difficult economic times, watching every penny spent, streamlining functions and trying to operate as “lean” as possible. Employers have dramatically cut inventories and workforces. Employees, who remain on the job, are typically being asked to maintain output levels with less human capital to support production. While the survival strategy is valid  and  necessary  given  the  uncertainty of the economy, employers must be on the lookout for the boomerang effect and often hidden costs of RIF activity  termed  as  “follow-on  churn”. This  is  a  hidden  but  controllable cost  element  created  by  a  RIF environment   that   can   add   a significant   amount   of   liability to an employer’s tax account if left unchecked.

As   relates   to   unemployment,   all employers will experience a common range   of   separations   and   unemployment   exposure, voluntary quits, discharges, leaves of absences and suspensions. This activity experienced  is  your  baseline UI exposure even in “normal” or non-volatile economic times. These areas can be controlled through the use of an effective cost control program along with management education, sound policies, timely and accurate UI claims management and detailed auditing of benefit charges.

In a RIF environment, churn costs generated are unique to the change  taking  place  but  can  present  similar to those experienced in a non-RIF workplace. These “churn” costs increase the incidence of all other types of separations. It will produce a compounding  effect when combined with direct RIF costs if not effectively identified and managed.

As organizations streamline and cut costs, the change dynamic generated can directly impact a workers perception and the reality of what is taking place in the organization.   Employers  confronted  with  a  reduction in force, are frequently applying a number of survival strategies like salary and hiring freezes, reductions in benefits, closer scrutiny of expenses, management turnover, the loss of more experienced employees, shift changes, etc. Any combination of these factors can often trigger morale problems. Employees, lacking consistent and sound communication from management, will fill in the “blanks” with a good amount of projection – typically negative. Performance can frequently drop off, behavioral problems develop, tempers flare, workplace complaints spike and workplace accidents can also increase. Otherwise invested employees can lose their edge and a generalized sense of indifference or worry can permeate the work environment. Translated into UI liability; disputable claim incidence multiplies.

Separations driven by the stress related to survival change can create “follow-on churn” not normally present in less turbulent economic periods. This must be recognized and controlled, or it will cause your UI costs to climb dramatically above and beyond the actual cost of RIF claims.  How can RIF churn be addressed?

We suggest considering the following:   

-Embark upon improved and consistent communication with employees. Limit surprises; get out in front of negativity by issuing prompt, useful and appropriately detailed internal communications.

-Understand and appreciate remaining workers situations, by assuring them management has more than a birds-eye view of the work environment.  Managers not sensitive to, or aware of the stressors present in the work environment are not well tolerated during good times; they can generate no small amount of ill will when a RIF environment is experienced.

-Increased training and support, particularly  to those workers directly impacted by new systems or business processes modified to accommodate the economic climate.  These should be thoroughly reviewed with workers and process changes communicated clearly and in writing.

-Be aggressive in listening to employees, addressing their concerns and when explaining “why” changes are required.

-Communicate “good news” and information that can lift confidence, inspire commitment and provide forward-looking perspectives. Recognize and champion those employees who model this behavior and perform well in the change  environment.

-Effective policies, continued UI consulting along with accurate and detailed UI claims management must be maintained during these challenging periods to ensure system controls are in place.

By remaining cognizant of the dynamics that can accompany a RIF environment, employers can reduce the compounding impact that “follow-on churn” frequently generates in terms of UI costs, keep turnover in check and are less likely to experience rate shock when tax rate notices are issued the following year!!

We hope this information is helpful. If you have any questions about this topic, please contact UTCA directly at 1-800-480-7725 or 1-888-395-7273.