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Furlough FAQ – What Employers Need to Consider

by Jenn McCabe

Updated April 8, 2020, to include additional details.

For a business that is temporarily under pressure, or in a short-term cash flow crunch, a staff furlough might be a more strategic option than a layoff. A furlough makes sense if the business has a reasonable expectation that business operations will continue in the long term.

When staff are “laid off,” the company is signaling to employees and the community that the business has to cut costs, or restructure, permanently. A layoff, also known as a “reduction in force” or RIF, is accompanied by costs. Those costs could include termination procedures to accommodate benefits continuation (COBRA) options and, notably, severance pay. A furlough does not necessarily cost as much, and it allows the company the option to recall workers after a temporary shut-down.


What is a furlough?

An employee furlough is a mandatory, temporary, unpaid leave from work. Employees will come back to their jobs when the employer notifies them that the leave has ended.


What should I consider when selecting which employees will go on furlough?

Employers can use a wide variety of determinants to decide which employees will be required to take a furlough. Some opt for company-wide furloughs, while others select certain departments based on their impact on the company’s business operations or decide that only non-essential employees will be put on furlough. Once employees are identified, employers must apply selection standards uniformly.

If it is not going to be a company-wide furlough, examine your proposal selections before implementing the program to ensure they do not unnecessarily impact a protected class of employees. Do not discriminate against employees when selecting individuals for a furlough.


How much advance notice do I need to give?

Reasonable advance notice should be given to employees before the furlough begins. Some states have laws regarding the stipulations of the notice, so be sure to research what is required. In addition, furloughs for longer periods of time may be affected by the federal Worker Adjustment and Retraining Notification (WARN) Act and some states’ WARN laws.

For example, in California, 50 or more employee furloughs may trigger California WARN Act notice obligations. However, at present, please note that Executive Order N-31-20, issued by Governor Newsom, waives the 60-day notice period to give as much notice as practicable for businesses affected by COVID-19. This waiver is in effect through the end of the declared state of emergency. For notices given after March 17, 2020, the content of the written notice must include the following statement: “If you have lost your job or been laid off temporarily, you may be eligible for Unemployment Insurance (UI). More information on UI and other resources available for workers is available at labor.ca.gov/coronavirus2019.”

Be sure to follow the federal and state WARN Acts that apply to your company. You also may want to seek legal counsel so they can guide you on filing the required written notices to the federal and state agencies that require notification for mass furloughs or mass layoffs.

If you’re an employer not subject to the federal WARN Act or your own state’s WARN Act, you’re not required to give a written notice. But it’s best practice, so we recommend that you do so.


How long can I furlough an employee without triggering termination?

There is no right or wrong answer to this question because it depends on your business’ current condition, the state it operates in and other multiple factors, such as your industry sector, the type of work, employee status and personal preferences. A furlough is a short-term solution for your business and not long-term; as a short-term solution, employees expect to come back to their jobs. Do not string along your employees for too long; allow employees to move on with their careers. Employers should consider a furlough to be a solution for a short, defined period of time, therefore, they should initially consider the minimum period of necessity when addressing potential furloughs.


Can I furlough employees who are under collective bargaining agreements?

Employers may need to negotiate terms and conditions with a union about employee furlough, so be sure to reach out to the union and review your collective bargaining agreements.


Can furloughed employees work during their leave?

For non-exempt (hourly) employees who work during a furlough, employers only need to pay them for the hours worked. Employers should make sure to follow their local jurisdiction’s minimum wage and overtime regulations when non-exempt employees are asked to work during a furlough.

Exempt (salaried) employees should not work at all during a furlough. If an exempt employee checks their email or does any other minimal tasks, then the employer is obligated to pay their full salary. Consider enforcing a no-work rule to prevent employees from doing any work during the furlough.

If a no-work rule will be instituted, consider being consistent with all your employees regardless of whether they are exempt or non-exempt and have the entire group not work at all. Consistency in treatment is appreciated by employees and may be required by non-discrimination regulations.


Can employees use their vacation time to get paid while on furlough?

Some employers may want to require their employees to use their accrued vacation time or PTO during the furlough to reduce the company’s liability. Or employers may give the choice to their employees to use their vacation time to supplement their pay. Certain state laws may restrict use of accrued time off while on furlough, so consider taking the safer route by making use of accrued time off voluntary.

If your company has an unlimited or self-managed PTO policy, check what your policy says about how long an employee can be on leave and still be paid under the PTO policy. What your policy says is how long you will pay your employees under PTO while on furlough. If your policy does not explicitly state how long an employee can get paid while on PTO, consider establishing these limits via a policy statement and communicating this immediately to your employee population.


Do I need to pay out accrued PTO/vacation time to furloughed employees?

In California, yes, it’s mandatory that you do so if there is no specific return-to-work date. It should be included in the employee’s final paycheck and be given on their last day worked. Whether or not PTO is required to be paid out at the time of furlough depends on each specific state’s PTO pay-out regulations. Employers not based in California should follow their state’s regulation, as it may differ from California’s. If you’re a multi-state employer and you have employees in California, we recommend you follow your own internal customary practice of paying out PTO like you would for a termination. So take the internal practice you have for terminations regarding pay-out and apply that same practice for your furloughed employees.


Can furloughed employees apply for unemployment benefits?

Yes, employees will be eligible for unemployment benefits. Check with your state agency for specific rules regarding unemployment benefits and how they will administer issuance of the additional unemployment benefits available under the CARES Act.


How will benefits be affected?

Your medical insurance carrier will generally follow your policies with regards to how long an employee can stay on the medical insurance plan before they need to go on to COBRA, however, some carriers or policy contracts may have other stipulations. Thus your employee, while on furlough, may be able to stay on your medical insurance plan for the duration of the furlough as long it does not exceed what your policy or insurance carrier contract says. Be sure to check with your benefits team to confirm with the carrier/broker before communicating this information to your employees.

Review individual employment contracts if you have them for your senior management team before implementing the furlough; their employment contracts may spell out contractual rights to compensation or paid leave benefits while on leave. Make sure the terms and conditions are followed as stipulated in the contract.


How will the 401(k) plan be affected?

Furloughs that affect more than a week or two per year and/or affect non-exempt (hourly) employees may make 401(k) nondiscrimination testing more difficult. Furloughs may also affect pension plan eligibility and matching contributions.


Can an employee scheduled to take Family and Medical Leave Act (FMLA) leave be furloughed?

Yes, however, no days associated with the furlough should count against the FMLA entitlement. Also, the request for FMLA leave cannot be used as a selection reason to decide who gets furloughed.


Can furloughed employees take outside employment while on leave?

Furloughed employees have the right to seek new employment, so some may consider taking temporary jobs while on furlough. If you have a company policy in place about outside employment, be sure to let your furloughed employee know if you will enforce the policy and if yes, explain the policy to them.


Are there tips for how to communicate to employees who will be furloughed?

To be as successful and trouble-free as possible, this requires a lot of preparation. So start preparing now.

Once you have selected who will be furloughed, have furlough letters written and reviewed prior to presenting them to the employees. In addition, be ready with a list of frequently asked questions that may come up regarding the furlough. The letter should contain an estimated (but not concrete, as the situation will continue to evolve) return-to-work date.

Be clear in your communication, maintain a clear and supportive voice and be patient, as you may need to react to a range of emotions from the furloughed employee, such as anger, shock and denial. Deal with the responses accordingly. Be considerate and show empathy, as they will be coming back to your company.


What supportive services should I consider offering furloughed employees?

If your benefits plan has an Employee Assistance Program (EAP), be sure to remind your employees of this resource. Through the EAP, they will be able to access support services to help them cope with the stresses of being furloughed.

These days, many state unemployment agencies strongly direct workers to apply for unemployment benefits online. For some employee populations, there may not be easy access to technology, employees may not feel comfortable using the internet, or there may be potential barriers to reading due to literacy levels or English not being their first language.

If you have these concerns, you may want to designate a person in your company, such as the Human Resources representative or Employee Relations representative, to provide extra assistance to these employees so they can apply for unemployment benefits in a timely manner. In the absence of this role, try to publish information in several languages and direct employees to get help at the local state offices.

Keep in mind, your employees will eventually return to the workplace, so you want them to return as stress free and committed to working for you as possible.

Be unambiguous about the furlough. If you set certain expectations with your furloughed employees, meet those expectations.


Are there any government agencies offering special consideration for leave triggered by COVID-19?

There are certain states, California and Washington for example, that have already started issuing special rules and guidance on how they will treat workers affected by COVID-19. These special rules augment the state’s unemployment benefits and disability wage replacement regulations if the claim is triggered by the virus.

Employees can be affected by COVID-19 if they are unable to work due to contracting the virus, if they need to take leave to take care of a family member who has contracted the virus, if the employee is working reduced hours, or if the employee was either furloughed or laid off. All of these circumstances can be very disruptive to employees and their livelihood.

Check with your state agencies that govern labor and unemployment to see if they have released special guidance for employers and employees.

Labor & Workforce Development Agency – California: Coronavirus 2019 (COVID-19) resources for employers and workers

Employment Security Department – Washington: For workers and businesses affected by COVID-19

Many states are currently requiring medical certification from a medical professional to validate disability claims. If your employee has contracted the virus, it may be a good option for your employee to consult with their doctor or nurse practitioner virtually. Be sure to let your employees know how they can access your medical insurance carrier’s telehealth service.


Summary

Be clear, think through all the possibilities, and be as transparent as possible with your employees. This is a case where you’ll want your staff to come back to work. They need to believe that this short-term solution will ensure a long-term, mutually beneficial relationship and that you are making a good decision and taking the best care of them possible while ensuring business continuation for the organization.

March 16, 2020

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Jenn McCabe - Partner, Outsource HR - El Segundo CA | Armanino
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