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Given everything that 2020 threw at us, planning for the year ahead might feel like shooting in the dark. There is an abundance of conflicting information from economists and conspiracy theorists alike — and for all we know they could all be wrong. Nothing is certain going forward.
In the meantime, the pragmatists will expect the best and prepare for the worst. We all want to see the economy rebound and businesses rehire, but our experience of the ever-present COVID-19 reminds us that the road to recovery could be a long one.
According to a recent survey conducted by PNAS, 41% of businesses reported that they were temporarily closed because of COVID-19. The unemployment rate in the United States reached an all-time high of 14.7% in April of 2020 and unemployment claims have exceeded a staggering 40 million since the start of the pandemic.
While businesses scrambled to address the shutdown, the use of a very niche offering became the interest of many organizations that needed to release or furlough employees while still providing them financial support.
The IRS-sanctioned Supplemental Unemployment Benefits (SUB) Plan was established in the 1950s Labor Union environment. This little-known and cost-efficient payment structure can be implemented in all 50 states in connection with permanent separations and temporary layoffs and allows the income of employees to be supplemented during a period of unemployment. This strategy allows employers to pay a stipend to their released employees in addition to state unemployment benefits so that the individual’s total take-home pay equals up to 100% of the regular wage prior to being laid off or furloughed.
SUB can be paid to workers alongside or beyond any additional federal unemployment enhancements like the CARES Act and the Lost Wages Assistance (LWA) program. SUB payments are allowed in all 50 states and are not subject to payroll taxes, as the IRS considers these payments to be benefits, not wages.
Breaking it down further, if someone were paid a weekly wage of $1,000 per week prior to their involuntary separation from the company and was eligible to receive state unemployment compensation of $400 per week, their weekly SUB Plan benefit would be $1,000 - $400, i.e., a weekly benefit of $600. The SUB benefit of $600 would not incur the 7.65% FICA tax for either the employee or employer. Compound these savings over a number of weeks for a furloughed workforce, and the savings to the company are significant.
Employers utilizing a SUB Plan typically save 30-50% compared to the cost of their traditional severance programs and most importantly, employees are kept whole.
The SUB plan structure provides financial security to employees during permanent or temporary layoffs, while at the same time enabling a company to take the necessary actions to control costs in a time marked by so much uncertainty.
As time ticks forward into a future plagued with uncertainty and stress, a SUB Plan can add an element of calm preparedness. Organizations that turned to a SUB Plan to get through the harsh 2020 economic environment can continue to utilize the program in the coming period of uncertainty and beyond. Whether the need for the program arises in the near future or down the line, having it in place will ensure that organizations and their employees are protected by a surefire, tested strategy whenever the need arises.
About the Author
Lana R. Mellis is a manager of business development and client services at Transition Services Inc.