Despite everything you’ve done to avoid it, you’re now facing a difficult decision. You must let go of valued employees. You don’t have the cash to continue paying them and you need to understand your options.
What does it mean to furlough an employee?
It’s a mandatory leave that’s unpaid and temporary. They are still your employee which means they’re covered under the company benefit plan and should receive the normal employer contributions to the plans. There’s just no work or not enough work. As an employment tool, it offers flexibility when you need to reduce your labor costs. You can require employees to take off:
- A certain number of unpaid hours over a specified timeframe
- A single block of unpaid time
You can take advantage of a slow period by furloughing them during that time. If demand has slowed but you still need them in the office regularly, consider reducing their hours. They could select one day per week as their furlough day. That way you’re paying them for 32 hours/week instead of 40 hours/week. While it’s never easy for employees to lose part of their income, furloughed employees may be eligible for unemployment benefits (varies by state and by how the furlough is structured).
There are Fair Labor Standards Act (FMLA) considerations with exempt employees. To avoid losing their exempt status, you can furlough them for a full week during financial slowdowns. FLSA states “there is no requirement that the predetermined salary be paid if the employee performs no work for an entire workweek.”1 Depending on company policy, health insurance may be continued for furloughed employees but it’s not mandatory. If you’re not continuing coverage, they can apply for COBRA if furloughed for a larger block of time. State healthcare exchanges could be an option as well.
Providing advance notice for your employees’ return date isn’t required, but it’s a good idea. Employees need to figure out logistics and you’ll learn whether they intend to return. You want to retain happy employees, so give them a head’s up as soon as you know when a furlough is ending or getting extended. Explain operational changes to protect against COVID-19 so they’re prepared and feel comfortable.
What does it mean to lay off an employee?
It’s when there’s a lack of work and employees are terminated. There is no blame placed on the employee. Their job has been eliminated.
Before you start laying off employees, consider all cost saving options. Explain measures you are taking to get back on track. Even if layoffs are unavoidable, they will appreciate your efforts and honesty. Be careful what you do and don’t share to avoid a panic.
During the layoff process, employers have a variety of obligations and opportunities. It is hard to deliver and receive the news that someone is no longer an employee. Treat the conversation with empathy and professionalism. It makes a difference to the person leaving and those who remain.
Are employers legally required to provide advance notice of a layoff?
- For a layoff that will last 6 months or less: No written notice required.
- For plant closings: 60-day written notice required if you intend to lay off more than 50 employees in a 30-day period. WARN Act exceptions may apply during the pandemic.
- For mass layoffs, not related to plant closings: Advance notice required if you intend to lay off 500 or more during any 30-day period. WARN Act exceptions may apply.
- Layoffs not covered under WARN Act: federal law does NOT require any notice. Employers can terminate immediately
What are employers’ financial obligations during this process?
- Final paycheck, mandatory
- Vacation/PTO payout, mandatory
- Severance pay, depends on company policy. If no policy, it’s not required
- Outplacement services, not required
Always consult with an HR specialist to make sure your layoff does not discriminate. Employees who are laid off are eligible for unemployment benefits, if they’ve earned enough wages over the previous year to qualify.
Key differences between furlough and layoff
- Furlough means they’re still an employee and expected to return to work whereas the job is eliminated for laid off workers. In special circumstances, layoffs can be temporary.
- Typically, laid off employees receive a severance package whereas furloughed employees don’t.
MidwestHR is a leading CPEO in Illinois (certified professional employer organization). For over 20 years clients have counted on our team of experts to manage all or part of their HR functions including payroll and tax administration, benefits management, workers’ compensation, risk management and more. In good times and bad, we will guide you through sensitive situations and give you the HR support you need. Give us a call at 630-836-3000 to learn more.
1U.S. Department of Labor, https://www.dol.gov/agencies/whd/fact-sheets/70-flsa-furloughs, Fact Sheet #70: Frequently Asked Questions Regarding Furloughs and Other Reductions in Pay and Hours Worked Issues, FAQ #4