My business is quite seasonal. We have work year round, but in the off-season we don’t need the same number of employees. It’s just not profitable to keep everyone on the payroll 12 months out of the year. Can I drop hours? Can I lay people off and rehire? Are there things that make one option better than the other?
Seasonal businesses are common, so you’re not alone in your concerns. Employees are the biggest expense in most businesses, and when you’re not getting enough work, it makes little sense to keep paying people.
Laying people off isn’t without costs, though. Let’s explore the numerous factors you’ll want to consider when crafting a hiring/employment strategy.
Related: Dilemma of the Month: Adjusting Employee Compensation
Actual Salary Costs
If your employees are exempt, you have to pay them the same amount no matter how many hours they work in a single week. So, if you have 10 hours of work during the off-season, they still get the same paycheck they would for an 80-hour week during the busy season.
Now, this may seem ridiculous, but it’s part of the tradeoff for not paying overtime costs during the busy season. When you’re calculating salary, you should take all those things into consideration and come up with an annual salary that makes sense and reflects the work they actually do.
If you lay off your employees, or drop their hours so low that they start looking for other jobs, there’s no guarantee they will still be available when your busy season picks back up.
For non-exempt (hourly) employees, you only have to pay them for the actual hours worked. (If you’ve scheduled an employee for an 8-hour shift and send him home after two, you still have to pay four hours under California law. But if you only scheduled him for four, you’re good to pay for two.)
If, during the slow season, your non-exempt employees’ hours — and thus their pay — drops too low (as determined by the California Employment Development Department), they are eligible for partial unemployment payments, which will cost you.
If you lay off your employees, they are eligible for full unemployment payments, which will also cost you. Just how much will vary based on a number of different things, but expect costs around $4,000 per laid-off employee. This is because unemployment costs from state-issued unemployment are charged back to the employer, depending on how many people are eligible and how long they receive payments. This is probably less than paying people, but it’s not a negligible cost.
Don’t, under any circumstances, make up a reason why the person was terminated and try to say it’s a termination for cause. It’s not. Not only is this dishonest, you’re likely to lose the unemployment claim and have the employee receive unemployment anyway.
If you lay off your employees, or drop their hours so low that they start looking for other jobs, there’s no guarantee they will still be available when your busy season picks back up. This is fine if you are running something with low-skilled labor — or it would be fine if the economy wasn’t humming along right now. As of May, there were more jobs open in the U.S. than there were people looking for work.
This means you’ll likely have to recruit and train new people every season. The more complex your jobs are, the more difficult this process will become. If your busy season corresponds to summer holidays, college and high school students may be plentiful. If it doesn’t? It will be a lot harder.
Would Temporary Employees Be a Better Fit?
If you know people will only be working for a few months, and you’re willing to train new people every busy season, then you should consider hiring temporary employees. You’ll pay extra to an agency, but they’ll handle everything and when the contract is finished, it’s finished. You won’t be dinged for unemployment or have to worry about benefits.
But, most people taking temporary jobs would prefer to be in long-term positions, so your turnover might be higher. On the other hand, if you can build a good relationship with a temp agency, this might be a great solution. Make sure you’re clear about your costs ahead of time, and how overtime hours affect pay. Remember, in California, employees are due overtime pay if they work more than eight hours in any single day.
All in all, there isn’t an easy answer for a seasonal business. You want to treat your employees well (otherwise, you’ll get lousy work and even higher turnover), but it can be difficult when you don’t have actual work for them to do.
You can probably make it work through a mix of methods — some long-term employees that you keep year round, supplemented by temporary employees, for instance. Just make sure you sit down with your accountant and your employment attorney before you make any decisions.
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