Contemplating a Furlough vs Layoff?
9 Critical Questions Answered
Furlough vs layoff – in the wake of COVID-19 and recessionary pressures, businesses are weighing many cost-cutting options, including the possibility of temporary or permanent workforce reductions. The new Emergency Family and Medical Leave Expansion Act (EFMLEA) and Coronavirus Aid Relief & Economic Security (CARES) Act could affect your deliberations as you determine your best approach to maintain business continuity through these uncertain times.
It’s essential to work closely with legal counsel as you develop a plan to reduce your workforce or institute a furlough (unpaid leave). While considering a furlough vs layoff, there are pros and cons to both options. With over 30 years of experience in career transitions and reductions in force, we answer nine key questions below to help you elevate your understanding of the issues. Additionally, we provide a basic comparison of furlough vs. layoff, with some thoughts on risk mitigation. Each strategy must be carefully considered.
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9 Critical Questions Answered
#1: What is a Furlough?
A furlough is a temporary unpaid leave or reduction in work schedule. This involves reducing the amount of hours, days, or weeks an employee works. In general, furloughed employees can continue to accrue vacation days and sick days, in addition to receiving other benefits like health insurance. Furloughs deliver short-term, modest savings to organizations, but there are risks involved. These include lost productivity, talent drain from turnover, and legal actions.
Non-exempt (hourly) employees do not need to be compensated during the furlough. Salaried employees can be furloughed, with a caveat. If a salaried employee works part of a workweek, they are entitled to their full weekly salary. If you plan to furlough exempt employees, make sure they are advised that absolutely no work is expected on the unpaid days. Otherwise, it appears that these employees are being paid by the hour, and they could lose their exempt status, which would mean they would be entitled to any earned overtime pay.
Overall, furloughs reduce labor costs until business improves. Once there is a need to resume working, furloughed employees can return, which eliminates the cost of recruiting and training new hires.
#2: What is a Layoff?
A layoff is permanent job loss. Employees do not receive continued access to company benefits or have a guarantee of being rehired once business picks up. Layoffs may have a significant impact on company morale and public perception.
When cost cutting is an imperative, layoffs may deliver greater total savings than a short-term furlough, depending on the number of employees involved. Like furloughs, there are risks at play. In addition to potentially tarnishing an employer brand, layoffs can reduce employee commitment and cause legal actions.
The decision of whom to layoff is a heavy one. To minimize legal risk, it’s important to have an objective criteria for selecting affected employees such as tenure or documented performance ratings. Some organizations use “Last In, First Out (LIFO)” as a determinant. Make sure you avoid selection based on age, race, gender, whistleblower status, or other demographics.
#3: Can Furloughed Employees File for EFMLEA?
Yes. Furloughed employees may file for compensation under the new Emergency Family and Medical Leave Expansion Act (EFMLEA) if they are affected by the virus in a number of ways, such as their own sickness, diagnosis, quarantine, or need to care for others – including children under the age of 18.
Paid EFMLEA leave cannot exceed $200 per day or $10,000 total, and the leave can extend for up to 12 weeks. The employer’s cost to provide both paid sick leave and extended medical leave time will be offset by tax credits. However, severely cash strapped businesses that foresee difficulty making payroll may not view furloughs as an option.
Furloughs and layoffs both have risks. Each strategy must be carefully considered.
#4: Can Furloughed Employees File for Unemployment?
Furloughed employees may file for unemployment. Employees who use vacation time or personal time during the furlough period may still qualify for unemployment.
While a one- or two-week waiting period is common during ordinary times, some states – including California, New York, and Texas – have announced they are waiving this period. In addition, they are waiving the requirement to show proof of an active job search. Both measures are to provide immediate relief during the pandemic.
It’s advised to review the unemployment eligibility in the states where your company’s operations will be impacted by the furlough. Keep this in mind, too: Some states have work-sharing programs that allow employees with reduced hours to receive unemployment benefits.
#5: What Other Employment Laws Are in Play?
When planning a layoff, seek legal advice to ensure you are following all federal laws, including the Older Workers Benefit Protection Act (OWBPA) and the Worker Adjustment and Retraining Notification (WARN) Act. Research all applicable state laws, as well.
The OWBPA requires employers that are requesting two or more employees to sign a release related to employment termination to provide the employee with a list of job titles and ages of all selected employees. The same is required for non-selected employees. You must also give the employee a 45-day consideration period.
WARN applies to a mass layoff of 500 or more employees or as few as 50 employees – if the layoff affects at least a third of the workforce, or if all 50 are terminated due to a shut down of one site within a 90-day period. WARN requires companies to give a 60- or 90-day notice except for unforeseen business circumstances outside the employer’s control – which would likely apply to the unprecedented and unexpected 2020 pandemic. While employers may not be held to the federal requirement of 60 days, it’s important to know that some states have broader WARN requirements than the federal statute. Seek legal advice to determine what notice periods you should abide.
#6: What Does a Typical Severance Package Include?
A typical severance package outlines the financial terms on which the employee will leave the company, including a mix of cash and benefits. The severance pay is typically one to two weeks for every year the individual worked at the company.
Other benefits can include continued insurance coverage for health, life, and disability; outplacement assistance in finding a new job; and an extension on company perks, such as gym memberships. Job seekers who work with a qualified outplacement firm are not only more likely to find new employment faster, but they are also more likely to feel that their emotional needs were met during the transition – assuming employers offer quality outplacement coaching services. Additionally, given social distancing requirements, a provider with a robust virtual delivery model is essential.
Review your company’s current packages to determine if changes need to be made to the existing plan.
Now’s the time to consider how the packages will differ between executive, management, and non-management employees. This isn’t an easy process. These questions will be helpful as you evaluate:
- Does the existing package need to be changed in view of current pandemic conditions?
- Do the existing packages take into account pay in lieu of notice, continuation of benefits until a designated date, and/or 401(k) impact?
- Is there a policy for PTO/vacation payout?
- What is the company’s policy on EAP for existing employees?
- For all of these factors, is there a designated date when these benefits will cease?
- Will your company pay for COBRA? If so, is a process in place to ensure that happens seamlessly?
- For those signing waivers, has consideration been established in exchange for signing and approving the waiver? Has it been reviewed for legal consideration?
- Does your written policy for severance make it clear that severance is not available to furloughed employees?
It’s strongly advised to work with an employment attorney when crafting your severance package and agreements. Treat it as a project that needs full project management and planning. Use a spreadsheet to track positions being considered. This up-front coordination between all decision makers and HR ensures you handle the layoff as diplomatically and gently as possible.
Outplacement services assist companies with making layoff decisions, empowering separated employees, and supporting remaining staff.
#7: Why Offer Outplacement?
Outplacement mitigates many of the risks embedded in a layoff, such as legal risks and damage to brand reputation, workplace culture, and productivity. Well-managed companies – those concerned with their “employer brand” and “consumer brand” – offer outplacement services so that separated employees will continue to think positively about the employer, continue to refer others for jobs there, buy the company’s products, or at the very least, refrain from posting any negative comments about the brand. Many separated employees might return as rehires – to the benefit of both employer and employee in the future. Outplacement engenders such positive possibilities.
Outplacement is typically employer-paid, because the employer benefits when the employee “lands” happily and quickly. Positive outplacement outcomes reduce unemployment expenses, promote positive morale for the remaining workforce, and leave the door open for redeployment – rehiring a former employee to fill a future opening.
Outplacement services can be offered as a standard part of your severance agreement – whether you are terminating a large group or just one employee.
#8: What is the "New Outplacement?"
If you haven’t been involved in outplacement assistance recently, you may think of it as just help with resumes and access to job listings. But these services have changed dramatically. In 2020, outplacement services are facilitated by expert coaches who offer digital strategies for building an online, personal brand. Coaches and clients build strong bonds via virtual sessions aided by video conferencing.
Today’s job seekers need help in creating a marketing strategy to promote themselves online as well as offline. Coaches not only help participants develop a strategy for self-promotion and marketing, but also how to position themselves to be found via online searches and how to optimally differentiate themselves from others who might be competing for the same job. Particularly for those who haven’t searched for a job in 5, 10, or more years – digital job search skills need to be developed. Not only do prospective employers tap LinkedIn and other sites, but in some industries and for some roles, employers expect to see a person’s website – not just a resume.
Even highly skilled professionals can be overcome by the difficulty and anxiety of job search. Outplacement coaches are also there to help with the emotional side of job loss – helping their clients with job search EQ. Fortifying someone’s resilience when they are working through the emotions of anger, anxiety, loneliness, and even depression is all in a day’s work for today’s professional outplacement coaches.
Unemployment claims can cost employers up to $12,000 per separated employee
#9: How Do I Address Concerns of the Remaining Workforce?
Outplacement firms help your leaders manage stress. Outplacement services are appreciated by both sides – those who exit and those who remain. Many of us have longtime relationships with our co-workers and separated employees will share their experience with others. Your remaining workforce will notice that your decision to offer high-quality outplacement displayed a level of compassion for its exiting workers, which goes a long way in alleviating stress and even guilt experienced by some “surviving” employees.
Furlough vs Layoff - How Should You Respond?
Furlough vs Layoff - What's the Answer?
Both have risks to your business.
Furlough vs layoff? The answer isn’t easy. Both have risks to your business. And one or both may be necessary to sustain your business through this extraordinary time.
None of us know the long-lasting effects of this pandemic, nor how soon businesses will rebound – and when we’ll need to rehire and create new jobs. Companies with critical cash shortages might determine that layoffs are necessary to maintain business continuity. If so, remember that how you manage a reduction in force will matter. Outplacement services mitigate the associated risks and will move your company forward faster.
Should you be planning an upcoming event, we can help – now!
In business for more than 30 years, IMPACT Group is a leading outplacement services firm, based in the Midwest with coaches situated around the globe. This might be our first global pandemic – but certainly NOT our first global economic downturn. For decades, we have worked with Fortune 1000 as well as smaller organizations through crisis as well as routine off-boarding. Our virtual delivery model enables us to provide immediate support to companies around the world leveraging our team of expert outplacement and career coaches. We can help.
Contact us today to discuss your unique outplacement situation. Whether you are managing everyday transitions or a large layoff, we can tailor our services for your budget and needs. We’ll help your employees transition faster and proudly.