Businesses that are experiencing coronavirus pandemic revenue losses are analyzing difficult options. You’ve spent years building a strong workforce and struggled through the workforce shortage, but the revenue doesn’t support the anticipated payroll.
Human resource options include: furloughs, reductions in hours and pay cuts, or layoffs. Furloughs, when you anticipate the layoff to be temporary, often are the best option for those that can afford them. A furlough is a mandatory, temporary, unpaid leave. Furloughs reduce payroll expenses without adding new costs such as severance packages and outplacement services. If you can keep the employees connected to the business then when business improves, employers do not have to pay for recruiting, hiring, onboarding and training new employees because the furloughed workers can pick up where they left off. But for some, permanent layoffs will be unavoidable. A layoff is a full separation from the company. During this decision making process, leaders are also balancing the potential for loan forgiveness under the Payroll Protection Plan SBA loans.
Businesses should encourage furloughed and laid off workers to apply for unemployment benefits on the first day of the furlough or layoff. Employees who use paid time off during the furlough may still qualify for unemployment benefits.
Wage and Hour Considerations
Beware of wage and hour laws when furloughing salaried employees. When a furlough is for one or more full workweeks, federal law does not require payment of the predetermined weekly salary. When a furlough is for less than one full workweek and a salaried, exempt worker performs any work during that week, the employer must pay the exempt employee's full weekly salary. Also, beware of employees ability to work off the clock and expose you to liability. To reduce that risk, collect mobile work furnished devices.
Any employer considering layoffs or a furlough must carefully consider:
- All state and local laws.
- The state emergency declarations and laws issued under the pandemic.
- Federal law, including any SBA loan regulations such as the Payroll Protection Program.
- The Worker Adjustment and Retraining Notification (WARN) Act.
The WARN Act requires advance notice when a mass layoff or plant closing occurs that results in employment loss for a requisite number of people. The federal WARN Act covers employers of 100 or more full-time employees and layoffs of 500 or more employees. It also covers employers of 50 to 499 employees if those workers constitute at least one-third of the workforce.
An "employment loss" is defined to include not only terminations but also furloughs that last for more than six months and significant reductions in hours. A furlough may trigger the WARN Act's advance-notice requirements and those imposed by state WARN Acts if the furlough is conducted for a longer time period.
Some states have lifted state WARN Act requirements due to the coronavirus.
Look at the news and it’s clear to see that many companies have already made layoffs. Again, a layoff is a termination. Employers are more likely to permanently lose laid-off employees. Employers have to decide who to layoff. If a workforce is unionized, be careful to review your union contracts. Most employers use performance-based criteria for layoffs and look at non-essential roles. If you’ve already made layoffs and have received a Payroll Protections Plan SBA loan, you may be considering re-hiring employees in order to receive the maximum loan forgiveness.
Reduced Hours, Pay Cuts
Employers can also reduce hourly employees to fewer hours and workdays. For salaried exempt employees, employers can't reduce weekly hours and correspondingly reduce compensation. Employers must pay exempt employees the same amount for each pay period in which they work, regardless of how many hours they work. Employers can reduce their salaries, just do not tie it to the hours worked. Another option is to have exempt employees work fewer pay periods while fully paying them for each pay period in which they work. The U.S. Department of Labor guidance states that employers are allowed to make a bona fide reduction of an exempt employee's salary "during a business or economic slowdown" if such a reduction is not related to the "quantity or quality of work performed" and is in place for a significant period.
The minimum salary requirement must still be met (currently $684 per week under the Fair Labor Standards Act; state requirements may be higher).
While these are tough decisions, it is crucial to business viability that business leaders make the tough calls. If they do not, they may risk the entire business. Pay roll is priority in a bankruptcy and leaders can be liable if they incur pay roll while insolvent and do not pay the employees the wages they earned. For more information, contact Jeana Goosmann, CEO & Managing Partner of the Goosmann Law Firm at GoosmannJ@Goosmannlaw.com and (712) 226-4000. As a CEO’s Attorney, she knows the advice you need in these uncertain times.
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