Thought leadership

Client Case Study: Reducing Severance Costs Using a Supplemental Unemployment Benefits Program

Client Case Study: Reducing Severance Costs Using a Supplemental Unemployment Benefits Program

A company engaged in oil and natural gas production and water treatment solutions had plans for an impending layoff within two to three months. The organization offered a traditional severance plan with payouts to employees upon termination based on salary and tenure.

Gallagher identified an opportunity to reduce the company’s severance costs significantly through implementation of a Supplemental Unemployment Benefits (SUB) Plan. The organization was able to use the cost saving to retain key employees and avoid additional employee reductions. A SUB plan enables an employer to provide periodic unemployment benefits without subjecting the benefits to FICA or FUTA taxes, Further, the plan generates additional savings by offsetting severance benefits by the amount of unemployment compensation received.

 

PROJECT COST/BENEFIT ANALYSIS

Based on the company’s severance program and 385 participants, the severance program would have cost approximately $11.2M. In contrast, the SUB plan cost totaled approximately $5.4M. Total SUB plan savings, therefore came to $5.8M ($5M savings with the offset of state unemployment insurance benefits, $800K in FICA savings and FUTA savings). The organization realized a 52% reduction of severance expense by using a SUB plan rather than offering traditional severance for this population. In addition, thes employees gained an additional $776K from the FICA tax exemption.

 

SUMMARY

By consulting with Gallagher’s Human Resources & Compensation Consulting practice (HRCC) and working with their third party administrator, the company immediately realized cost savings benefits from their SUB plan and improved the separation process and experience for their employees and HR and payroll staff.

Gallagher’s HRCC practice will serve as the organization’s advisor and provide guidance regarding the creation and rollout of the SUB plan, consulting on related human resources matters as needed. The range of support the Gallagher team provides includes:

Implementation Support

  • - Prepare and review an analysis of opportunities and cost savings available through the use of a SUB.
  •  
  • - Assist and respond to inquiries from human resources, tax and payroll personnel throughout the development of a SUB.
  •  
  • - Review and advise on necessary internal documentation and procedures for the administration of the SUB.
  •  
  • - Review applicable prepared filings to state and federal agencies or other correspondence with respect to the SUB, where applicable.
  •  
  • - Review and advise on training materials and documents for internal personnel as to the administration of the SUB.
  •  
  • - Research, as needed, areas of state unemployment law regarding plan design considerations.
  •  
  • - Advise regarding the implementation and rollout of the SUB plan, including review of employee communication materials through the point of implementation.

Post-Implementation Support

If requested by the company after the implementation of the SUB plan, we will assist and advise on SUB plan matters during the post-implementation phase as needed, including providing overall HR advice and project management support. Gallagher clients have access to our team of experts to provide HR advice as circumstances arise, to support overall organizational wellbeing.

In difficult times, Gallagher works closely with clients to understand their needs and offer appropriate solutions to help organizations face the future with confidence.

 

© 2020 Arthur J. Gallagher & Co.

Consulting and insurance brokerage services to be provided by Gallagher Benefit Services, Inc. and/or its affiliate Gallagher Benefit Services (Canada) Group Inc. Gallagher Benefit Services, Inc. is a licensed insurance agency that does business in California as “Gallagher Benefit Services of California Insurance Services” and in Massachusetts as “Gallagher Benefit Insurance Services.” Neither Arthur J. Gallagher & Co., nor its affiliates provide accounting, legal or tax advice.