Among the many issues employers are facing in the wake of the novel coronavirus (COVID-19) is the possibility of furloughs, temporary office and location closings, and short-term layoffs.
Reference this guidance to determine the best course of action for your workforce.
Furlough vs. Layoff
A furlough is a temporary, leave of absence, which is generally shorter in duration in full day or week increments. During the furlough, the employees are not paid, but they are still technically employed. When the business reopens to full strength, furloughed employees will become active again.
A layoff is a separation of employment for an indefinite or permanent period of time.
A furlough could be seen as favorable to retain talent and reduce the cost of separation (e.g., payout of vacation balance payout) or future hiring and training.
Pay Requirements During Furlough
Employers must be cautious of pay-related matters during a furlough. Non-exempt employees are only paid for their hours worked. Therefore, when furloughed or not working, they do not receive pay.
Per the Fair Labor Standards Act (FLSA), exempt employees must be paid their full salaries for any workweek in which any work is performed. Therefore, an employer seeking to furlough an exempt employee should be careful to require exempt employees to take unpaid time off in full-week increments and to not perform any work during the week, including working from home, reading/responding to emails, or calls. If any work is performed during a workweek, the exempt employee must receive their full salary (days not-worked can be supplemented with any available paid time off such as vacation time).
Employers may seek to have employees work fewer hours each week and pay them less. Reduced work hours and schedules can be applied for non-exempt employees; however, the FLSA does not allow employers to reduce exempt employees’ pay for working fewer hours. Any adjustment in exempt employees’ salaries must be permanent in nature as short-term changes can jeopardize the employees’ FLSA exempt status.
Voluntary Time Off
Per the FLSA, exempt employees may take voluntary time off without pay. However, this unpaid time off must be completely voluntary and cannot be caused by employer business conditions or be the result of pressure or request by the employer to take time off.
During a layoff, employees are separated from employment and would be eligible to continue their benefits through COBRA. Employers could choose to subsidize COBRA benefit payments for impacted employees.
Employers may treat furloughed employees to be on a “leave of absence” status and maintain benefits coverage while making employer contributions and requiring employee premium payments, or the employer could utilize COBRA for the furloughed time period. It is recommended that employers consult with their OneDigital advisor to determine the most appropriate benefits continuation option for their business.
Many states’ unemployment insurance also applies to significantly reduced work hours, temporary furloughs, and layoffs. Eligibility for unemployment insurance is determined by each state. Click here for a state-by-state guide on unemployment.