Job Sharing: A 21st Century Employment Strategy

With so many workers facing long term unemployment and no job prospects for recent grads, isn’t it about time that employment strategies other than those that have unsuccessfully pursued in recent years be given serious consideration for getting millions unemployed workers into some form of gainful employment?  There is a new employment innovation known as “universal employment” that is  now available to companies that offer alternative employment options that simultaneously create organic incentives for companies to hire.

Despite claims that the “official” unemployment rate  has gone down by a few fractions of a percentage point, the harsh reality is that more than 50% of the available U.S. labor force is NOT operating within the legitimate boundaries of the U.S. employment system.  It is a well documented fact that 30-35% of the available U.S. workforce is comprised of independent contractors, consultants and freelancers, none of which operate under the safety net protection and coverage of employment and labor laws afforded “traditional” employees.  Reliable sources place the real unemployment rate closer to 24%, which is likely more accurate when you consider those who have stopped filing for benefits, stopped looking for employment or who were never eligible to file for benefits in the first place.  This is a travesty for American workers who have little hope of establishing economic stability through gainful employment;  it is also a travesty for the Government because the more workers operating outside of the legitimate employment system, the less tax revenue the Government has to work with.

Political leaders continue to urge companies to hire workers while introducing one so-called jobs program after another as an inducement to companies to hire more workers.  However, these so-called jobs programs have none of the incentives companies need to begin hiring again.  U.S. companies have been trending toward mass layoffs/downsizings in response to their need to reduce fixed overhead costs since the late 1980s, so if political leaders were really listening and understanding what companies are saying through their actions, it should be crystal clear that companies need the ability to hire workers and simultaneously control their fixed overhead costs.  After all,  companies that chose to layoff/downsize, did so as a last resort to going under.  They are, therefore, not likely to turn around and increase their fixed overhead costs again by hiring under the existing employment paradigm just because government and political leaders ask them to since this would put them right back where they were before.  Sadly, it has become a frustrating game of  trying to “force square pegs into round holes” as political leaders attempt to rally companies into a hiring frenzy with their futile jobs programs that produce no sustainable jobs and only give millions of job seekers a sense of false hope.

Recent so-called jobs programs touted by political leaders have promised to do one of two things to get companies to begin hiring again – they have either promised to infuse billions of dollars to create infrastructure jobs or to further reduce payroll taxes.  Companies don’t need the government to throw money at them as an inducement to hire.  Interestingly enough, most companies are doing quite well financially without government hand-outs as evidenced by the recent growth in GDP, the economic indicator of the output of goods and services produced by labor and property in the U.S.  The U.S. GDP increased at an annual rate of 3.0% in the 4th quarter of 2011.  However, despite the recent increase in the GDP, companies still are not hiring to a degree that it results in an appreciable decrease in the REAL unemployment numbers.  Neither do companies need the government to offer additional payroll tax reductions as an incentive to hire.  What companies need more than anything is for the Government to simply clean up the legislative mess surrounding employment and then get out out of the way so they can aggressively compete in a global economy and expand their businesses organically, which will in turn stimulate sustainable job growth and hiring.

Employees’ salaries and benefits is the single greatest fixed overhead expense that companies carry.  If government and political leaders made it legislatively possible for companies to hire “employees” and treat their salaries and benefits as a variable as opposed to a fixed expense without taking away the safety net protection of employees, they would essentially untie the hands of corporations so they could exercise alternative hiring options that would prove beneficial to them, their employees and government tax authorities.  ”Universal employment” offers such an option, where workers can be hired under a flexible hiring option such as job sharing.  ”Universal employment” is an employment innovation designed to accommodate the unique needs and demands of the 21st century labor force that allows companies to “legally” hire workers in alternative employment arrangements without depriving the workers of legal employee status and the safety net protections that come with being an “employee”.

Following is an example of what a typical job sharing situation would look like under “universal employment”:  Both Company A and Company B each have need of a financial analyst for 1,040 man-hours, which translates to 20 hours per week for each company.  John Doe is a financial analyst who meets both companies requirements and is hired under the “universal employment” platform as a “universal employee”.  John Doe is deployed to Company A to fulfill their 1,040 man-hour requirement.  During John Doe’s deployment to Company A, the company pays the agreed upon salary for John Doe, from which an independent ASO (Affinity Service Organization) deducts the appropriate local, state and federal payroll taxes and makes quarterly payments to the appropriate tax authorities on behalf of John Doe.  The ASO also collects from Company A the appropriate employer’s contribution to FICA, FUTA &  SUTA for payment into John Doe’s state and federal unemployment and social security accounts.  Company A also provides Workers Compensation coverage for John Doe for the period of time he works with them (1,040 man-hours).  The same scenario is repeated for John Doe when he is deployed to Company B, which may occur in tandem with his deployment to Company A (morning hours at Company A/afternoon hours at Company B) or sequentially (6 months part-time with Company A followed by 6 months part-time with Company B).  At the end of the year, the ASO sends John Doe a W2 which he uses to file his personal income taxes.  In this scenario, it was not necessary for either Company A or Company B to become the “employer of record” for John Doe, which would have required them to hire John Doe as a traditional “employee” and treat his salary and benefits as fixed overhead costs.  ”Universal employment” allowed both companies to hire John Doe as a “universal employee” and therefore treat his salary and benefits as a “variable” expense as opposed to a “fixed” expense.  It is important to note that John Doe received ALL of the same safety net protection under “universal employment” that a traditional “employee” would have received under the existing employment paradigm.  So, the company is happy because the have the use of a qualified worker without having to increase their fixed overhead costs; the workers is happy because he has a job; and finally the tax authorities are happy because they have another employee paying employment taxes into the treasury.

Employee: The American dream or 21st century nightmare?

Dating as far back as the beginning of the industrial revolution, the goal of becoming an “employee” has long been viewed as the pathway to economic stability and professional growth and success – the American dream!  Over the last 20+ years, the possibility of  achieving the American dream through gainful employment has been steadily eroding and becoming more of a 21st century nightmare for millions of well trained, highly experienced American workers who are unable to find a “single” employer that is willing to hire them as a permanent full-time “employee”.  You may wonder why companies are less willing to hire permanent full-times “employees” today than they were 40 or 50 years ago?  The answer to this question can only be found by understanding two underlying conditions having to do with 21st century growth and change that have brought us to this point.

The first underlying condition has to do with understanding that the term, “employee”  is a legal term used throughout employment and labor law that was created for workers migrating from farms and going to work for corporations at the beginning of the industrial revolution.  (It is extremely important to stress the legality of the term “employee” because like all legal terms contained in law, they have specific and often narrow definitions within the context of that law and “employee” is no different).  Most people don’t make a distinction when using the terms, “employee” and “worker”, but there is a big difference between the two and understanding that difference is critical to understanding how employment laws and tax codes that were created specifically for “employees” that now cause companies to shy away from hiring “employees”.  It is also important to note that as companies shy away from hiring “employees”, they are much more willing to hire workers that are “non-employees”, which incidentally is great for the company but not for the “non-employee”.  At the beginning of the industrial revolution, there was only ONE class of worker in the employment system, i.e. “employees”.  Therefore, employment and labor laws enacted at that time were concerned only with this ONE class of worker.  As employment and labor laws were formed to articulate the legal rights for “employees”, IRS tax codes were created that dictated how companies would be hire ”employees”  and treat them from a tax standpoint.   Unfortunately, those IRS tax codes dictated that when companies hired “employees”, they HAD TO TREAT THE SALARIES AND BENEFITS ASSOCIATED WITH THEM AS “FIXED” OVERHEAD COSTS.  On the other hand, companies can hire workers who are “non-employees” and the cost of salaries and benefits are treated as a VARIABLE expense.  This tax treatment of  ”employees” and workers who are “non-employees” goes to the heart of the problem and explains why companies are shying away from hiring “employees” under the existing legislation and leaning toward hiring workers who are “non-employees”.  What companies and “non-employee” workers really need is an option that allows companies to hire a class of  ”employees” (universal employees) and treat the salaries and benefits as a variable expense.  The ability for companies to treat “employees’ salaries and benefits as a variable expense could very well be the stimulus that many companies need to begin hiring even in a tough economy, which explains why many companies that downsize will turn right around and bring many of their laid off workers back as consultants or independent contractors  at a higher rate of pay.  There are many financial benefits to a company’s ability to transfer large fixed overhead costs associated with “employees” salaries and benefits to the variable side of the ledger, but companies are not able to do this this due to outdated legislation that has outlived it usefulness. 

It is equally important to understand that over the last 80+ years, there have been drastic changes in the makeup of the labor force, which has seen the introduction of other types of workers  since the beginning of he industrial revolution.  The 21st century has produced several other types of workers who are “non-employees” and therefore are NOT covered by existing statutory employment and labor law.  Some sources estimate that there are between 42 and 60 million “non-employee” workers in the U.S. that 21st century growth and change have produced   Unfortunately, a significant percentage of these 21st century workers are forced into a state of disenfranchisement and impoverishment when they lose or fail to find jobs as “employees”  because there are have no other legal employment status to which they can move that allows them to continue to build their economic and professional stability.  The solution to this dilemma is a legislative amendment by Congress to legally recognize “universal employee” as a type of “employee” that companies can hire and treat their salaries and benefits as a variable expense.  This scenario creates a win-win-win for 21st century workers-companies-government in that millions of 21st century workers will have a legal “employee” status to which they can move when they lose a traditional “employee” job; companies will gain the flexibility of JIT (just-in-time) staff planning and the tax advantage of treating salaries and benefits of “universal employees” as variable expense; and the government will gain millions of new entrants into the tax employment revenue pipeline.

The second second underlying condition has to do with the growth and preponderance of the number of “employees” and an upward shift of  non-managerial “employees”  into managerial ranks since the beginning of the industrial revolution.  In 1950 during the early stage of the industrial revolution, only 20% of the nation’s workforce had migrated from farming to “employees” working for corporations and the other 80% were still self-employed.  By 1980, over 90 percent of the nation’s workforce was “employees”, which was a complete reversal from the early 1900′s when over 80% were self-employed.  In addition, the ratio of managers to non-managers had increased from 19% in 1950 to 32% in 1987 (Huber & Glick, 1993).  The combination of these two factors – rapid growth of the number of employees and a major shift of non-managers to managers – resulted in a disproportionate number of “employees” relying on X number of corporations their livelihood and large “fixed” overhead costs associated with salaries and benefits.   Since the 1980s when other global and technological conditions converged on corporate America, companies began to turn to downsizing as their solution to reducing their “fixed” overhead costs.  It is important to note that if companies had had the  alternative to move large “fixed employee” overhead costs from fixed to variable costs, millions of workers would have been spared the loss of jobs and their economic and professional stability.   As you may recall, many downsized workers, realizing that there was little or no hope of finding permanent full-time work with a single employer, began making themselves available as consultants, independent contractors, freelancers, etc., working for multiple employers. While not ideal because many of these workers were being wrongfully deprived of  access to group health benefits and other safety net protection reserved for “employees”, they were nonetheless able to work.  In other words, these workers’ willingness to accept temporary jobs was better than having no job at all.  Then someone in the ranks of government (probably IRS) realized that the government was loosing billions of dollars in employment tax revenue and decided that legislation needed to be passed that would put an end to companies hiring millions of workers as consultants, temporaries, etc. that millions of workers were relying upon for their survival.  So, each state began passing what is known as “independent contractor” or “employee misclassification” legislation.  These are state laws that essentially make it illegal for companies to hire consultants, temporaries, etc. and attempt to force companies to hire them as “employees”.  So, many companies that didn’t want to risk heavy fines being placed on them for hiring temporary workers decided to send their jobs overseas where they did not have to deal with the increasingly restrictive and burdensome legislative environment here in the U.S.  The alternative that would have prevented companies from taking such drastic measures is “universal employment”, which would allow companies to hire consultants, temporaries, etc. as “universal employees” and treat their salaries and benefits as a “variable” expense.

So this is where it all becomes a nightmare – companies are not making long-term commitments to hire “employees, the government shuts down the opportunity for workers to earn a living from temporary assignments with multiple employers,  companies send their jobs overseas and millions of well trained, highly skilled workers are left with no means of earning a livelihood or they are reduced to begging the government to extend unemployment benefits!  There are two very important questions to ask if one is really interested in gaining clarity around the question of “how the American dream was allowed to evolve into a 21st century nightmare.  The two question are as follows:

1.  When our political leadership realizes that millions of people who can’t find permanent full-time jobs as “employees” and are turning to temporary jobs for survival, what responsibility do they have to American workers to amend outdated legislation so that temporary (interim) workers are eligible to receive the same protection and coverage of the law as traditional “employees” in stead of passing legislation that shuts down temporary employment and forces companies to send jobs overseas?

2. Since Congress is the legislative branch of Government, what can you and other Americans, who want to see more jobs in the U.S., do to hold Congress accountable for taking steps to end this 21st century nightmare and restore the American dream?”

 

 

 

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