Furlough, Layoff and Reduction in Force? What’s my best option?

How does it affect benefit eligibility?

Even though the words are used interchangeably, their true meanings are quite different. Be prepared to answer employee questions, or amend your plans, before making an announcement about unpaid time off.

Furlough

Furlough requires employees to work fewer hours or take a certain amount of unpaid time off.

For non-exempt employees, an employer can reduce hours worked, i.e. working 32 hours instead of normal 40, or one less day per week, or a full week of unpaid leave.

For exempt employees, a furlough without pay must encompass a full workweek. Under FLSA rules if an exempt employee works any time during the workweek the employer must pay the full week’s wage.

An employer may require all employees to go on furlough, or it may exclude some employees who provide essential services. The main purpose is to have the majority of employees share some hardship as opposed to a few employees losing their jobs completely.

An employer may allow employees to maintain benefit coverage for a defined period of time.

Layoff

A layoff is a temporary separation from payroll because there is not enough work for him or her to perform.

The employer believes that this condition will change and intends to recall the person when work again becomes available.

Employees can typically collect unemployment benefits while on an unpaid layoff. An employer may allow employees to maintain benefit coverage for a defined period of time.

Reduction in Force (RIF)

RIF occurs when a position is eliminated without the intention of replacing it and involves a permanent cut in headcount.  A layoff may 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.

Full Time or Part Time Status

Confirm your plan’s definition for eligibility. Most health plans only cover full-time employees working certain minimum hours per week.  Your hours reduction may unintentionally drop an employee’s insurance coverage.

You may want to include an exception and time period during a temporary layoff., i.e. “employees furloughed for less than 30 days can remain eligible for the medical plan.”  Check with us or your carrier to confirm if this is allowable under the insurance plan’s certificate of coverage.

People are mainly concerned about health benefits but don’t forget potential effects on vacation, sick leave, life/disability, and retirement plans.

Clear messaging and understanding will avoid additional stress during a difficult time.