Employers Offering Telecommuting to Cut Real Estate Costs

As the economic downturn continues, many companies are looking for new ways to cut costs.

A growing number of organizations are offering telecommuting as an answer to pricey real estate, particularly in parts of the country like New York and San Francisco where office space is still expensive despite the dismal real estate market, observers say.

“A couple of our clients right now have a stated business strategy to decrease office space,” says Janice Hand, a senior consultant at Hewitt Associates. “And to do that, they are discussing giving certain employees the ability to work off site.”

Traditionally, employers have offered telecommuting as a perk to retain key talent, Hand says. But during the past several months, companies are citing it as a way to reduce real estate costs, observers say. The fact that it might also help employees save on gasoline costs is apparently not uppermost in their minds, but it couldn’t hurt.

“Since Thanksgiving, we have heard more companies telling us that they are implementing telecommuting programs to save all kinds of costs,” says Charlie Grantham, executive producer of the Work Design Collaborative, a Prescott, Arizona-based consortium that focuses on researching and defining the future of work. “Real estate is one of their biggest fixed costs, and they want to make it into a variable cost as much as they can.”

While there hasn’t been an uptick in companies allowing their office leases to expire just yet, there is an increase in office vacancies in the San Francisco Bay area, says Jim Kelly, vice president of the business consulting division of Staubach Co., a global real estate advisor.

Kelly, who works in Staubach’s Palo Alto, California, office, is seeing as much as a 10 percent increase in office vacancies as more companies allow employees to telecommute.

Companies can reduce operating costs by 40 percent per person by letting them telecommute, Grantham says.

Sun Microsystems, which has allowed employees to telecommute since 2000, has seen huge cost savings, says Carolyn Rohrer, a spokeswoman for the company.

The San Francisco-based technology company saved $67.8 million in real estate costs in fiscal 2006, she says. More than 18,000 Sun employees participate in the program.

One issue many companies face is offering telecommuting on a case-by-case basis and not as a blanket policy, observers say. Only 27 percent of large employers in a recent Hewitt survey said they have a formal written policy around flexible work arrangements.

Companies offered telecommuting to a select number of employees as a perk and agreed to pay for their home office costs. However, they also are paying for the costs of those people having a desk with the company, Kelly says.

“Those companies end up paying 150 percent for those employees,” he says. “But they don’t see it that way; they just see it as a benefit that they are offering to select employees.”