In times of economic downturn or uncertainty, employers are sometimes faced with difficult decisions to reduce costs. There are several approaches to consider and key differences.
A furlough is mandatory, unpaid, and temporary. Furloughs are often implemented in rolling groups to keep a smaller scale operation going. Furloughed workers can jump back in where they left off when their time off ends. Employees are eligible for unemployment benefits during a furlough. A special note about furloughing salaried, exempt staff: collect all mobile devices and computers and ensure that the exempt employees are not contacted or requested to perform any services during a furlough. Any work in a workweek will result in an exempt, salaried professional being owed a full week’s salary.
Layoffs are full separation of employment. When you can rehire, it’s best practice to recall laid off employees first, but there is no defined time period or guarantee that they will return to work for the company. Layoffs often cost employers severance packages and outplacement services, as well as the recruiting and training costs associated with replacing the workforce when you rebuild your staff.
When considering furloughs or layoffs, consult legal counsel to understand whether you are subject to the Worker Adjustment and Retaining Notification (WARN) Act which requires an employer to give advanced notice of a shut down or mass layoff. In light of the pandemic, some states are modifying, or waiving WARN obligations.
It’s also important to partner with union representatives if you need to layoff or furlough unionized employees.
Hourly wages and schedules may be reduced at the employer’s discretion for non-exempt (hourly) employees, if they remain complaint with minimum wage provisions and any employment contracts or collective bargaining agreements. Salaried, exempt employees are due their full weekly salary regardless of how many hours they work in a week. The Department of Labor does permit salary reductions during business or economic slowdowns, if the reduction is in place for a significant period of time and not related to the “quantity or quality of work performed.”