Covering Your Bases: How to Best Manage the Unpleasant Task of Furloughs and Layoffs

Unfortunately, a lot of employers have found themselves needing to reduce staff due to COVID-19, and often in a very short timeframe without a chance to do much planning. We know that our clients want to do what is best for their employees as well as the business, but it can be confusing to understand what that looks like. To further complicate things, the introduction of the Paycheck Protection Program and other federal loans may, in some cases, allow employers to call back employees before business is back to normal, and has left people needing to factor that in as well.

Let’s start by looking at the two main terms you are hearing around these kinds of actions: furlough and lay-off. There is no one-size-fits-all option as to what will be best, and you might find yourself doing a mix of both for different parts of your workforce.

Furlough:  A furlough is a situation where an employee is not working, or working less, but still stays an employee of the company. They are kept on the company benefit plans, generally still gain seniority and are still able to supplement this unpaid time with vacation or other paid time off. You, as the employer, might need to be involved in the unemployment claims process, but that will vary by state.

In this scenario you might need to consider how deductions such as insurance or garnishments will be collected if the employee is not being paid a typical amount through payroll. If you are using this strategy, be cautious with salaried employees as they are still required to be paid their standard salary in any week in which they do work, so your options are more limited there with things such as full week furloughs or salary reductions.

Lay Off: A lay off is where an employee has their employment ended with the company, they are paid out their accrued PTO (as applicable under policy and state law) and offered benefit continuation under COBRA. For all practical purposes, this is no different than any other type of termination.

If this is the avenue that is right for your situation, you will want to communicate what happens if your employee has a 401(k) loan as well as what happens with garnishments. Also, depending on the number of employees you are having to let go, you may still be subject to federal WARN notices. Generally, if you have over 100 employees and are letting go more than 50 people you need to follow this process.

Here’s the next big question: what happens after this mayhem in our economy begins to settle down? We all hope that our clients will be able to quickly bring people back onto the payroll and get things back to normal, but there are some things that you want to make sure to consider:

• If employees have been furloughed, this is generally easier because they were always employed by you and you can put them to work just as they were before.
• If employees were laid off, you might need to reach out to your insurance carriers to make sure you follow the rules related to rehires and see if you can offer a special enrollment period. Similarly, make sure you consider any gap in service rules with your 401(k) plan or your collective bargaining unit seniority rules.

Sudden disruptions to business are never easy, and this current environment is like nothing we have never seen before. We can all definitely learn from each other. I would value hearing from you about how you are approaching the furlough and/or layoff process. What are some of the lessons you have learned along the way that could help others in a similar situation? Please leave your comments below and let’s get a conversation started!