How to Navigate Employee Compensation When Faced with Furloughs

The coronavirus pandemic has had a huge impact on the economy. Small startups to massive corporations are facing difficult decisions to sustain the health of their companies, including taking the extreme cost-savings measure of reducing their workforce through layoffs or furloughs.

While furloughing employees is a severe measure, many companies are turning to this option as a gentler alternative to layoffs. While employees’ pay and hours are temporarily reduced during furloughs, this option allows companies to provide certain benefits to their employees. Additionally, furloughing enables organizations to ramp back up quickly once the time is right by avoiding the additional costs and delays associated with rehiring and training new team members.

Should companies choose to move forward with the difficult decision to furlough employees, below are some of the important considerations to keep in mind that will help employers navigate this process, while also ensuring they do right by their staff.

The Importance of Displaying Hallmarks of Continued Employment

To ensure that a furlough is truly viewed as a furlough and not as an effort to circumvent layoff laws, employers must show “hallmarks of continued employment” throughout the entire furlough.

Hallmarks of continued employment show good faith from an employer, demonstrating that they are sincere in their intentions to have furloughed employees return to work at a future date by providing them with certain benefits. Examples of these hallmarks might include continuing to provide certain benefits like health insurance and continuing to allow employee equity to vest.

For employees who are required to drive to fulfill the duties of their job, employers might choose to provide reimbursements for the fixed costs incurred as a result of maintaining their personal vehicles – which are considered mixed-use assets as they are used in part for the benefit of their employers, even if they are currently “idle” from a business perspective. These include insurance premiums, license and registration fees, taxes, and depreciation.

Health Plan Coverage

While health insurance can be leveraged as a hallmark of continuation, one thing to consider is that some insurance plans do not allow employers to pay health benefits during furlough. Generally, health insurance plans require employees to work full time – usually defined as 30 or more hours per week. If this is the case, employers should confirm their health insurance plan allows them to provide coverage to furloughed employees – if it doesn’t, they may have the ability to modify their insurance plan.

For employees who lose their health coverage as a result of the furlough, the Consolidated Omnibus Budget Reconciliation Act (COBRA) is an option that gives employees and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time. Should employees need to take advantage of COBRA, employers should discuss with their employees how they plan to continue paying monthly premiums to maintain coverage. Employees will still need to pay their required contribution to avoid a lapse in coverage, albeit through alternate avenues, such as mailing a check to pay as they go. In some cases, employers may also allow employees to catch up with their contributions once the furlough ends.

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Legal State and Federal Requirements

Employers must also stay mindful of legal requirements and risks applicable to furloughs. For example, while employers are not required to pay out accrued vacation, employees can still choose to use unused vacation time if they want. In the case they do, that PTO would be payable.

Many states have also recently passed laws similar to the U.S. Department of Labor’s Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act, which requires employers to provide paid sick and family leave to employees for reasons related to COVID-19. While they generally do not apply to employees who have been furloughed, employers must be careful to ensure that the furlough is made without regard to an employee’s use or anticipated use of paid leave. Otherwise, the furlough could be considered as retaliation against an employee, putting the employer in direct violation of the anti-retaliation provisions of these laws.

Regardless of the course of action, it’s important to maintain open channels of communication with all furloughed employees. Providing employees with periodic updates on the business’s recovery may help improve morale and the employer’s ability to quickly re-engage furloughed workers when the business is ready to resume normal operations. That said, employers must be cautious about expecting employees to check email during a furlough if it could be construed as performing work. Exempt employees are entitled to their full salary for any week in which they perform any work – so even one email could entitle them to a week’s pay. (Non-exempt employees, in contrast, are entitled to pay for hours actually worked.)

Above all, ensuring that hardworking employees are provided for is among the ultimate goals for employers who turn to furloughs to maintain the financial health of their company. Providing certain benefits and helping to offset the costs of mixed-use assets will help employees pay their monthly bills as they wait to return to work. Following these practices will also support a compliant furlough package for companies navigating through this difficult time.

Danielle Lackey is the Chief Legal Officer at Motus, a solutions provider for businesses with mobile-enabled workforces. Danielle’s expertise includes representing major corporations in complex civil and criminal matters. She is responsible for all Motus legal affairs and compliance functions and drives initiatives that bolster Internal Revenue Service and legal compliance for Motus customers.

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