Layoffs vs. buyouts

McClatchy Newspapers (MCT) - With hundreds of public and private employers in the region downsizing, some, like Hewlett-Packard Co., are laying off workers, while others, like the city of Sacramento, are offering buyouts.

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Both moves help employers reduce head counts and cut wage and benefit costs.

Experts say they are very different tools, and employers use them for different reasons. But for workers, the difference between a layoff or a voluntary buyout may be dramatic.

Here's a look at the issues involving buyouts and layoffs.

_What's the difference between a layoff and a buyout?

Suzanne O'Keefe, an associate professor of economics at California State University, Sacramento, said layoffs happen when employers must cut payrolls fast. Workers selected for layoff have no say in the matter but may return later if they have recall rights under a contract.

"With a layoff, there is hope that it's more temporary, and you can possibly come back to the job when things improve," O'Keefe said.

Buyouts are different.

"They are typically packages of financial incentives offered to workers to leave jobs voluntarily. They have a choice," O'Keefe said. "But when they leave, it's permanent."

According to a new study by Right Management, a Philadelphia-based human resources firm, the average U.S. employer's voluntary buyout deal includes lump sum payments equal to between 1.23 to 2.76 weeks salary for each year of the employee's service, plus medical insurance for a period.

_Why do employers offer buyouts before doing layoffs?

O'Keefe said buyouts are a goodwill gesture that employers adopt when they must reduce staff but maintain morale of remaining workers and stature in the community.

"Buyouts are typically offered to veteran workers near or approaching retirement," O'Keefe said.

Buyouts are risky, though, offering "formidable challenges" to senior executives, Harvard University Business School professor Stuart Gilson said in a 2001 book.

The executives must pick who gets downsized: factory workers vs. administrative, for example, and must keep remaining workers motivated.

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That gets more complicated if executive compensation is tied to the financial results from the downsizing, Gilson wrote.

For all those reasons, Sacramento State's O'Keefe said employers must decide beforehand who will be eligible so top performers aren't lost. "You can't have your entire computer department taking the buyout," she said.

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When companies don't meet financial targets because too few workers took buyouts, layoffs may be the next step.

_If you take a buyout or voluntary severance package, are you eligible for unemployment insurance benefits?

Accepting a financial package to leave a job is considered a voluntary quit that makes a person ineligible for unemployment insurance benefits, said Michele Sutton-Riggs, of the Employment Development Department's UI program.

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However, employers use the term "severance" loosely, and some offer UI supplements. Because eligibility for unemployment insurance is decided case by case, people should apply and let state officials decide, she said.

_If you're laid off, how many weeks of unemployment insurance benefits do you get? And how much do you get?

EDD spokeswoman Lory Levee said a mix of existing state and federal unemployment insurance benefit extensions give workers up to 33 weeks of benefits if laid off today. After you're sent home, there's a one-week waiting period when you get nothing.

But you should apply for benefits immediately; it takes time to process applications.

The maximum weekly benefit is $450, depending on your salary and work history.

_What's the best way to apply for unemployment insurance?

Online, at www.edd.ca.gov. Levee said benefit applications are up 78 percent in the third quarter of 2008. EDD phones are jammed. There were 1.5 million call attempts made the Monday after Thanksgiving. If you can't apply online _ and officials strongly suggest you'll get the best service by doing so _ call (800) 300-5616.

_Can employers avoid big layoffs with state help?

Yes. The EDD's Sutton-Riggs said the department has a Work Sharing Program. Companies can cut workweeks to four days for staff, who can then can apply for benefits to cover the fifth.

Employers need advance approval to participate, she said. "This lets employers ride out tough times and wait for better times. And nobody has to be let go," Levee said.

_With 533,000 people losing their jobs nationally last month, what can workers and employers do as they enter 2009 facing an uncertain job market?

Adecco USA, a major human resources firm, recommends that workers follow news about their employer to avoid surprises.

Workers also should remain positive and focused, remembering their health is as important as their job, the firm said in a report.

Adecco also urges senior executives to communicate with staff honestly about conditions.

"Let your employees know what strategies you have in place to stay afloat. The only thing worse than laying someone off is losing key talent because they feared for their jobs," the report said.

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© 2008, The Sacramento Bee (Sacramento, Calif.).