Furloughs and Layoffs During the Economic Impact of COVID-19

The current situation has impacted businesses, and as a result many are exploring options to help their employees during this uncertain time.

Furlough or Layoff?

Both are intended to achieve cost savings. Even though the words have been used interchangeably, their meanings are different.

Furlough. A furlough is an alternative to layoff. An employer may require employees to work fewer hours or to take a certain amount of unpaid time off. For example, an employer may furlough its nonexempt employees two days a week and pay only 24 hours instead of the normal 40 hours. Another method is to require all employees to take a week or two of unpaid leave sometime during the year.

Employers must be careful when furloughing exempt employees to not jeopardize exemption status under the Fair Labor Standards Act or state requirements. A furlough that covers a full workweek is one way to accomplish this, since exempt employees do not have to be paid for any week in which they perform no work.

It is important to review state and local regulations and opinions on duration of a furlough, particularly timeliness of payable wages including earned vacation. For example, a California opinion letter states that a furlough longer than 10 days is considered a termination and requires payment of earned vacation/PTO at time of the employment status change.

Employees placed on furlough typically maintain health benefits eligibility; however, this is dependent on how eligibility is addressed in plan documents and/or rules in your state.

Layoff. A layoff is a separation from payroll – temporary or permanent – that creates termination of employment. An employee is laid off because there is not enough work for the individual to perform. If the employer believes this condition will change, the employee can be recalled when work again becomes available.

Layoffs are generally treated like other employment termination decisions – required timeliness of final pay and termination of health benefits coverage (triggering a COBRA event). Employers can choose, but are not required, to subsidize COBRA for terminated employees.

** **Many employers are looking for ways to avoid furloughs or layoffs. Providing sabbaticals can reduce payroll costs and maintain an employment relationship. In addition, employers may reduce employee schedules, reduce employee compensation, temporarily cease discretionary payments such as vacation pay, employer pension/401k contributions, merit increases and suspend bonus programs.

Available Wage Replacement Benefits

Furloughs and layoffs raise a host of questions for human resources and employees, alike.

1. If we reduce employees’ work hours, including full or partial week furloughs, or lay them off due to COVID-19 will they be eligible for unemployment insurance?

It depends on eligibility, amount of earned wages or the reduction (each state law is different). Some states have a higher threshold for defining partial unemployment. Many have lifted restrictions due to COVID-19 including not requiring workers to actively seek work if expected to return to work.

2. Can an employee receive paid benefits if taking care of an ill or quarantined family member?

** **Generally, this would not qualify for UI benefits. If available, an employee may receive state Paid Family Leave (PFL) benefits if unable to work because the employee is caring for an ill or quarantined family member.

If eligible, an employee may receive pay through the company’s time off policy, earned vacation or sick leave, and/or partial paid time off under the FFCRA.

3. Can an employee receive disability insurance benefits?

If available, an employee may receive state Disability Insurance (DI) benefits if unable to work due to having or being exposed to COVID-19. Depending on the state program, an employee may need to provide necessary supporting documentation.

The Author

Newfront is a modern brokerage transforming the risk management, business insurance, total rewards, and retirement services space through the combination of elite expertise and cutting-edge technology. Specializing in more than 20 industries and headquartered in San Francisco, Newfront has offices nationwide and is home to more than 800 employees serving organizations across the United States and globally.

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