As businesses across the nation respond to preventative measures to combat the threat of COVID-19 and prepare for the resulting economic impact, employers of all sizes are evaluating financial options for their workforce.
Employers are seeking to balance supporting their employees while sustaining their business in light of the global pandemic.
Since commonly used terms like “furlough”, “layoff”, and “reduction in force” can be a source for confusion, let’s unpack these three options and examine important considerations for each.
The outcomes of each action are uniquely different and deserve understanding before making a decision.
The terms furlough, layoff, and reduction-in-force are similar terms, but each has a different outcome.
Furlough usually means a reduction in hours or taking a certain amount of unpaid time off. It may be required of all employees, or essential employees may be exempt. Furloughed employees can usually keep their medical benefits.
Layoffs happen when an employer separates an employee from payroll. This can be temporary or permanent. A laid-off employee’s medical benefits will usually end.
Reduction-in-force (RIF) occurs when an employer eliminates a position with no intention of replacing it in the near future. A layoff can eventually turn into a RIF. A RIFed employee’s medical benefits will end.
In all three cases, the employee can typically collect unemployment insurance benefits. A furloughed employee can usually collect partial unemployment, even if they’re still employed.
A furlough is an alternative to a layoff. When an employer furloughs its employees, it schedules them to work fewer hours or requires them to take a certain amount of unpaid time off. However, they remain active on the payroll and are subject to all applicable employment laws and protections.
For example, an employer may furlough its hourly, nonexempt employees one day a week for the remainder of the year and pay them for only 32 hours instead of their normal 40 hours each week. Another method of furlough 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. Exempt employees must generally be paid a guaranteed salary under the Fair Labor Standards Act (FLSA) so that they do not jeopardize their exemption from overtime. A furlough that encompasses a full workweek is one way to accomplish this since the FLSA states that exempt employees do not have to be paid for any workweek in which they perform no work.
An employer may require all employees to go on furlough, or it may exclude some employees who provide essential services. Generally, and where possible, the theory is to have the majority of employees share some hardship as opposed to a few employees losing their jobs completely.
Generally speaking, employees on furlough will retain their seniority status and employee benefits may be maintained in a similar fashion as when they are working. Employees on furlough are also able to apply for unemployment insurance benefits due to their reduced work schedules.
From an HR point of view, a layoff is a temporary separation from payroll, even though the term is often informally used to mean a permanent, involuntary separation.
An employee is generally laid off because there is not enough work for him or her to perform. This could be due to a seasonal slowdown in business, or some other situation that is expected to be short-term. The employer believes that conditions will change and intends to recall the individual when work again becomes available.
Employee medical benefits will usually end and COBRA may be offered, if applicable. Employees are typically able to collect unemployment insurance benefits after they have been laid off.
A reduction-in-force (RIF) occurs when a position is eliminated without the intention of replacing it in the near future and involves a permanent cut in headcount. A layoff may eventually turn into a RIF, or the employer may choose to immediately reduce their workforce. A RIF can be accomplished by terminating employees or by means of attrition.
When an employee is terminated pursuant to a reduction-in-force, it is sometimes referred to as being “riffed.” However, some employers use layoff as a synonym for what is actually a permanent separation. This may be confusing to the affected employee because it implies that recall is a possibility which may deter the employee from actively seeking a new job.
Employee medical benefits will end and COBRA may be offered, if applicable. Employees who are separated due to a reduction in force are typically able to collect unemployment insurance benefits.
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This article is for informational purposes only and does not constitute legal advice. Readers should first consult their attorney, accountant or adviser before acting upon any information in this article.