Military Service: What It Means For Employers

Judy Olian

(Judy Olian is dean of Penn State's Smeal College of Business and host of "About Business," a monthly call-in show airing at 7 p.m. on the first Tuesday of each month on WPSX-TV, WPSU-FM, and at http://wpsu.psu.edu/abusiness/index.html.)

About 300,000 members of the Reserve and National Guard have been called to active duty since 9/11, many of whom are serving in Iraq. More may be summoned as the military burden intensifies.

These men and women will be away for months, and even after returning to the U.S., they may be called up again for active duty. The rights of employees who depart for military service are spelled out in the 1994 Uniform Services Employment and Reemployment Rights Act (USERRA). USERRA stipulates that employers cannot terminate these employees or hire permanent replacements. Let's pray that all those serving in the military return home safely. In their absence, beyond the tremendous personal disruption to reservists' lives, their employers also incur significant dislocation.

Employers must address several critical issues when their employees are called up for military service. Will they hire temporary workers or split the burden among the rest of the staff, will the firm supplement the military compensation to protect the reservist against loss of pay, how will client relationships or business development continue despite the absence of critical talent?

USERRA provides military health care coverage, and assures employee reinstatement. That includes pay and scheduled raises, benefits, and any promotions that would have been added in the interim. If the reservist has been absent more than 90 days, an employer can provide "a position of like seniority, status and pay." Employers are not required to continue health coverage beyond 30 days. However, through COBRA, the employee can purchase the same health coverage for up to 18 months. The only employment-reinstatement exception to USERRA is when employer circumstances change significantly and there is substantial hardship.

How do employers handle the sudden loss of key employees? In the case of large employers, most manage by balancing the workload across multiple incumbents, or by hiring temporary replacements. A Society for Human Resource Management survey reports that 82 percent of employers assign work to other employees, 43 percent authorize additional overtime, and 49 percent hire temporary replacements.

The average active duty pay for midlevel officers in the National Guard and Reserves is $50,000 to $55,000 a year. If professional engineers, project leaders, computer specialists or financial portfolio analysts are called up, they are almost certain to incur significant loss of income. A survey by Black Consultants reports that 54 percent of employers with employees on active duty provide a differential to close the pay gap between military and civilian wages, in most cases for six months to a year. Some employers, including Bank of New York, Schering-Plough, IBM, and ExxonMobil keep employees "whole" for the duration of their military service. The survey also found that 43 percent of companies provide full medical benefits for up to a year.

However, small companies have a harder time coping with the absence of critical employees since they have no substitute talent that can fill in. Each employee in a 10-person operation is 10 percent of the business. That's a big hit. Recognizing this hardship, the Small Business Administration launched the "Military Reservist Economy Injury Disaster Loans" program, offering loans of up to $1.5 million for business owners with employees who have been called up.

The greatest losses are incurred by reservists who are self-employed. Physicians are a prime occupational group in this category. When they stop working, they often lose all except their military income, and they may even lose their practice since patients need immediate care.

These are very significant hardships for all employers. It's not just getting the work done. It's maintaining or establishing close business or patient relationships that can't be handed off to others, long-term projects that require historic knowledge and continuity, deep expertise that takes years to fine tune, or intimate knowledge of clients and competitors to structure proposals and new business opportunities.

Yet, as challenging as it is, the system's adaptability to these unplanned staffing fluctuations is an organizational competency that will pay off in other areas. There are many reasons for changes in staffing strategies. Shifts in customer demands, competitor raiding of key talent, loss of important clients, technology advances, changes in economic circumstances, or employee call-up for military duty are all jolts that require rapid response. They generally cause some level of re-assignment of work, restructuring of operations, new technological solutions, or downsizing.

Whether the driver is the loss of reservists to Iraq or the reassignment of a key consulting team to a new area of business - organizations with the flexibility and capacity to adapt their operating strategies rapidly will have a distinct market advantage. In that sense, the troop call up may be a valuable business learning opportunity.

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REPORTERS & EDITORS: For more information, please contact Wyatt DuBois in the Smeal College of Business Media Relations Office at 814-863-3798 or wed112@psu.edu.

Penn State's Smeal College of Business offers highly ranked undergraduate, MBA, executive MBA, Ph.D., and executive education opportunities to more than 5,500 students at all levels. Featuring academic departments of accounting, finance, marketing, insurance and real estate, management, and supply chain and information systems, the college is also home to major research centers such as the Center for Supply Chain Research, the Institute for the Study of Business Markets, the Center for Digital Transformation, the Farrell Center for Corporate Innovation and Entrepreneurship, the Center for Global Business Studies, and the Center for the Management of Technological and Organizational Change.

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