During these difficult times, employers and small business owners—particularly those that are customer facing—are having to make tough decisions about what to with their team members and employees when they cannot work. Many employers are weighing whether to permanently lay-off workers or temporarily furlough them, anticipating that their labor needs will pick back up as businesses slowly reopen.
What is a furlough?
A furlough is a suspension from work without pay for a finite period of time. It can be mandatory or voluntary. Furloughs are commonly used by companies that have seasonal employees or other corresponding ebbs and flows in their business, and are commonly used by federal and state governments as a cost-saving measure, particularly during a government shutdown.
The employer has significant freedom regarding now to structure furloughs; the furlough may be for one day or several days. The employer can require that employees take one or two days off per work week, or they can furlough them for entire weeks at a time. However, there are some important considerations to keep in mind when considering whether to furlough employees.
First, it is important to know that furloughed workers are not fired or terminated, and that they retain their “employee” status with the company. Therefore, employers must continue to provide benefits such as health insurance to their furloughed employees.
Employers need to be aware of the requirements of their specific health-insurance plans, as some group plans have requirements for minimum hours worked in a week, resulting in employees being dropped from their plans if they are furloughed for prolonged periods of time.
Second, it is important to distinguish between non-exempt employees (those being paid hourly) and exempt employees (those being paid a salary and performing exempt duties).
An employer who furloughs a non-exempt employee, is only required to pay them for the hours they actually work. If your business is closed, or they are furloughed for an entire week, you do not need to pay them. You may allow them to use PTO or vacation time to make up for the unpaid hours.
An employer who furloughs an exempt employee should be aware that an exempt employee is entitled to their full salary for any week in which they perform work, even if it only a single day out of the week. If your business is closed or the employee provides no work, then you do not have to pay the employee their salary for that week.
Furloughed workers may be eligible for unemployment benefits if their hours are reduced below 32 hours a week.
What is a lay off?
In contrast to a furlough, traditional lay offs are generally a permanent severing of the employer/employee relationship. While an employer can rehire these employees, they will have to go through the formal rehiring process in order to do so.
Employers do not need to continue to provide health insurance or other benefits to laid-off employees.
Employers are required to follow their policies for laying off workers, including paying out accrued vacation or PTO.
Laid-off workers are eligible for unemployment benefits and COBRA benefits, although COBRA may not apply if an employer terminates its entire workforce, as the policy will generally be terminated by the carrier.
Consider all of your options
Given that furloughs are generally temporary and for a fixed amount of time, while layoffs are permanent, it is important to consider to the best of your ability the length of time that your business will be affected.
Depending on your workplace culture, it may be beneficial to talk to your employees about their options Your employees are the people who support your business and your vision every day. Furloughs can be frustrating for employees because they do not know if they need to look for work or how long they will be on leave. Some may feel better knowing that you want to keep them employed, that you will continue to provide benefits, and that you want to bring them back to work as soon as you are able. On the other hand, while permanent, layoffs provide certainty and a definitive severing of employment.