Workforce Reduction Considerations: Layoff vs Furlough
Many businesses are struggling to manage their workforces in the current climate. While recently passed economic stimulus packages have provided incentives for companies to retain their employees, in many cases companies have had significant business interruptions and still may be forced to consider letting some employees go. Business owners may be considering layoffs or furloughs, but may not understand the difference.
A layoff is a separation from payroll and may be temporary or permanent. Layoffs commonly occur when there is not enough work to keep individuals employed, however, the company hopes to recall the employee when work becomes available. During a layoff, employees are removed from payroll and company benefit programs, which they may be eligible to continue under COBRA. Laid-off workers may also apply for unemployment insurance benefits.
A furlough is essentially an unpaid period of absence, through either a partial or total reduction in hours. Unlike a layoff, furloughed employees are not removed payroll however they will not be paid during the furlough period. Often companies use this as a cost-savings measure when they don’t want to lay off workers but cannot afford to keep paying them. If considering a furlough, an employer should check with its health insurance carrier, as many have announced that they are allowing furloughed workers to remain on their health insurance plan during the COVID-19 pandemic.
Companies that plan to furlough employees should make it clear that they are not to do any work during the furlough period. If a furloughed individual does any work, of any kind, you are required to pay them in accordance with wage & hour laws – this is especially important for exempt employees, who are entitled to full pay for any workweek in which they perform any amount of work. Companies may even consider limiting access to computer systems during this time. Furloughed workers may also apply for unemployment insurance benefits for their time without pay.
In either situation, it is important for businesses to document the process for identifying who is selected, to ensure that it is done in a way that does not adversely discriminate against any protected class of individuals. It is also important to review any employment agreements or contracts that exist, particularly with respect to any notice period or guaranteed severance. As always, companies should make sure they follow any policies in employee handbooks with respect to separation from employment.
Lastly, employers of a certain size may need to comply with federal and/or state WARN acts that would require advance notice in the event of a mass layoff. There may be exceptions to these laws due to the pandemic, so it is important to review both federal and state requirements under these laws.
With either a layoff or furlough, employers should provide employees with their respective state’s unemployment insurance notice to aid in the application for benefits.
Any companies that plan to take advantage of any of the provisions of the CARES Act should understand any potential implications of workforce reductions while obtaining benefits from the federal government.
Need help deciding whether a layoff or furlough is the right decision for your workforce? The Wiss team is here to help.