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Unforeseen Consequences of Tech Layoffs

Whether an employer experienced a layoff or are presently in a location where neighboring employers experienced them, there are financial impacts on benefits programs that all finance and people leaders should be aware of.

The tech industry continues to take a hard look at its workforce in 2023, with nearly 500 tech companies impacted by layoffs — affecting over 126,000 workers. Contributing factors to these layoffs vary from concerns of a shrinking economy, inflation, higher interest rates, investor pressure, and corrections post-pandemic. The endless reasons for the unpredictable nature of the economy are causing companies to pause and evaluate their biggest spend, payroll and benefits.

Finance leaders may see their net costs reduced with the layoff, but a surprising statistic could be an increase to their per employee per month (PEPM) benefits spend. Even more surprising, the companies not impacted by layoffs also saw their PEPM increase beyond their 2023 forecasts. OneDigital has seen this PEPM impact ranging between +5% to +15% from the original projections. For a company with 500 employees, this can lead to additional net annual costs between $300,000 to over $1M.

Impacts of Tech Layoffs on Employer Net Costs:

While the uptick in layoffs has heavily hit the tech industry, employers across the board are not immune to the challenges and effects it has brought to benefit programs.

Decrease in Benefit Waivers:

Shift from Employee Only to Employee Plus Dependent(s):

  • Employee spouses and adult children impacted by a layoff now seek coverage in the employee’s plan. The employer now has the net new cost of the premiums for the additional dependents.

Impact of COBRA Subsidies as Part of the Severance Package:

  • There are higher utilization rates and increased risk of claim costs as the COBRA population manages health care items they put off while employed
  • The increase in the COBRA population has led to medical carriers assigning a higher risk score, resulting in a higher premium increase.
  • Fewer marketing options with large group medical carriers. Trend patterns show that it’s more refusals to quote to avoid the high-risk COBRA population.
  • Self-insured medical plans could see higher stop-loss premium renewals due to an increased COBRA population with higher claim risk.

Salary-based Benefit Cost Increase: Life and Disability:

  • Employers targeting lower-wage employees with a reduction in force will see an increase in term-life and disability benefits due to the premium based on the payroll volume. Removing the lower-wage employees will increase the covered volume per employee and therefore, the total premium.

Assess and Address the Situation

Organization and finance leaders need to act now to identify their PEPM benefit spending to compare their projected 2023 PEPM to their current PEPM. Determining the cost impact now can help shift costs to align with budgetary requirements, avoiding big surprises down the road.

In addition, employers considering future layoffs may consider alternatives to directly offering COBRA subsidies as part of their severance package. By providing a lump sum cash benefit, employers may reduce future COBRA elections and additional claim risks to their medical plan.

The future of your workforce starts today. Cutting-edge benefits can support employees and boost morale in the face of a reduction in force. If you’re planning layoffs, schedule a meeting with your OneDigital strategist to ensure you remain compliant.