Furlough vs Layoff vs Reduction in Force
What is Furlough?
Furlough is a temporary unpaid leave from work. Many employers are furloughing their non-exempt staff for some of their hours to reduce costs. In some cases, this may be furloughing them for one or two weeks, or furloughing them one day a week to reduce costs. This is a tactic used to avoid laying off staff by reducing the wages of all staff.
What is the Difference Between Furlough and Layoffs?
While a layoff means cutting some members of the staff temporarily or permanently, furlough keeps employees on payroll but reduced hours.
Why Would Companies Choose Furlough?
Furlough is a great short-term solution to reduced work, such as Covid-19, strikes, seasonal work, or government shutdowns. They allow a company to get back to work immediately when business returns.
What Is the No-Work Rule?
If an employee is furloughed, they cannot work at all during the furlough period. This means an employee cannot take work calls or answer emails about work. If a furloughed employee does five minutes of work, they must be paid for the entire day. The exception is non-exempt employees; they only need to be paid for the time worked.
How Does FLSA Affect Furlough?
FLSA says furlough is allowed, as long as:
- Non-exempt employees do not have their hours or wages cut
- Employees are not paid below minimum wage
It’s tricky to furlough exempt employees for partial weeks, as it risks changing their exempt status. It may be easier for the company to furlough exempt employees for full work weeks.
What is a Layoff?
The defining feature of a layoff is that an employer intends to recall their employees back to work. Employers will lay off employees when they can’t afford to pay them, or there is not enough work for them to do. If an employee is laid off, they may be entitled to unemployment benefits.
What is the Difference Between Firing an Employee and Laying Them Off?
If an employee is fired, it is because of their unsatisfactory performance, failing to meet contracted terms, or their actions are against company policy. When an employee is terminated, it is with the intention that they will not be asked back.
A layoff, on the other hand, is due to a company’s lack of financial stability or a restructuring. Because it is not the employee’s fault, the employee may be eligible for UI benefits.
How to Decide Which Employees to Lay Off
It is vital there is no discrimination in the decision to lay off an employee. Most employers will lay off their employees based on the following criteria:
- Performance
- Opinions of supervisors and managers
- Hire date
Can Laid Off Employees Claim Unemployment Benefits?
Yes, as an employee has been discharged due to no fault of their own, they are entitled to unemployment benefits. Due to Covid-19, the federal government has expanded the unemployment benefits to:
- Employers who have had to shut because of coronavirus and therefore cannot offer work to their employees
- Employees who are quarantined but will return to work once their quarantine has finished
- Employees who have to care for a family member or who cannot work because they risk exposing a vulnerable family member to the virus
Check your local state guidelines for more information.
Will Severance Pay Affect Unemployment Benefits?
Yes, a severance package can affect unemployment benefits. Employees must pay taxes on severance payments and mention them in their claim. A severance package can affect the amount of unemployment benefits and when the employee receives their unemployment benefits.
What is a Reduction in Force?
Unlike layoffs and furloughs, a reduction in force is a permanent elimination of positions. This can be done through attrition or terminating employees.
What Is the Difference Between a Reduction In Force and a Layoff?
Many people confuse the two terms. A layoff can eliminate positions and multiple employees, but the employer intends to call their employees back to work. A reduction of force is a permanent elimination of positions with no intention to refill them. Layoffs may turn into reductions of force, because the employer is unable to or changes their mind about recalling their employees.
What Are the Potential Legal Issues of a Reduction in Force?
There are potential legal implications if there is any discrimination in the employees you choose to terminate. When considering who to terminate, evaluate if any protected groups are more affected in the decision. Even an unintentional change of workplace demographic can cause legal issues.
How Do I Stay Compliant During a Reduction in Force?
All reductions in force must comply with the WARN Act. Under this Act, employers must provide 60 days’ notice to employees who are laid off in a large scale action. They must also be advised if the layoff is temporary or permanent and how the positions will be recalled in the future. Small businesses are also subject to the WARN Act.
Will All Employees Affected By a Reduction in Force Be Eligible for Unemployment Benefits?
Yes, since the loss of their job is due to no fault of their own, employees will be eligible for unemployment benefits. Employees must then meet the normal eligibility criteria.
Be clear with the employee about the type of separation, so they know how to proceed. If you intend to hire the employee back, ensure they know that and their rights to benefits in the interim.