Labor Loaning: The Mutually Beneficial Alternative to Laying off Your Employees
American businesses have always been heavily reliant on credit and loans. In fact, in July of the pre-COVID world, large businesses in the United States had over 10 trillion in nonfinancial corporate debt. Yet, while credit has long been a lifeline for drowning businesses, during the COVID crisis there is a new form of lending that can save businesses that have had to lay off a majority of their workers: labor loaning. Labor loaning is exactly what it sounds like - instead of loaning someone your money, as a business, you are loaning them your workers for a fee. This enables you to keep your workers employed and paid, even if your business activity alone cannot support them.
Does Labor Loaning Work?
To understand this phenomenon, we examined the process of labor loaning within countries that are further along with the pandemic. For example, in China, some of the pandemic’s most successful surviving companies stayed afloat by loaning their labor to companies experiencing increased demand due to the coronavirus. In another instance, a Japanese restaurant in Beijing managed to pay all of its employees despite being closed by holding a one-day training session and turning workers into grocery sorters at a nearby supermarket that was struggling with increased demand for grocery delivery. These are not isolated cases either. A recent analysis by Boston Consulting Group noted that “employee-sharing” was a tactic widely employed by Chinese companies that survived pandemic-induced lockdowns. In short, if done correctly, Labor Loaning has the ability to keep your business above the water.
Is Labor Loaning for Me?
Of course, this depends on your specific small business, however, if you find yourself having extra employees/workers that can no longer generate previous amounts of revenue, it is definitely worth looking into (especially if you have had to send workers home and are still paying them/ lay off employees). On the flip side, if you are actively looking for more workers because your business’s demand has just exploded, then you might be on the demand side of this business strategy.
How Do I Get Started
This answer depends on the labor laws of the region in which your business is headquartered. In most cases, you must abide by the labor laws that govern the company you are loaning labor to; however, this is not an absolute rule and changes depending on your state/region. Once you have researched labor laws surrounding leased employees in your area, reach out to local departments and companies to enter an employee-leasing agreement. Once initiated, another important aspect is setting liability and compensation for accident agreements within your leasing/borrowing contract (this is important on both the loaning and loaner side). Moreover, on the borrower side, depending on the number of workers within the transaction, it is important to also evaluate whether taking on additional workers will bring on additional regulations (there are specific federal regulations such as The Worker Adjustment and Retraining Notification Act that apply once your worker amount exceeds a certain threshold. Finally, make sure that you implement adequate safety, sanitation, and security for your workers being loaned and ensure that the company doing the borrowing follows safety guidelines as well. Additional resources include links to companies that can help with creating employee-leasing agreements as well as a government template of what one looks like. Furthermore, there are some details which each small business interested in labor loaning should be aware of. With these steps and insights, you can get well on your way to engaging in labor loaning.
Key Takeaways
If you are either in high need of workers or are currently having to layoff/not need many workers, labor loaning might be the strategy to help you stay afloat
Labor loaning is highly dependent on local labor laws but is not difficult to engage in after a bit of research and local communication
Before engaging in labor loaning, it is important to truly understand the process within your area and sign robust employee-leasing contracts that account for liability and safety guidelines
As a social impact initiative, Rem and Company also offers free consulting services and resources to small businesses and nonprofits impacted by COVID-19. Our pro-bono consulting teams provide small businesses with the opportunity to identify and prioritize issues facing their business, propose innovative strategies, and facilitate execution. If you are a small business or nonprofit in need of assistance, learn more about how we can help.