Companies are scrambling to respond as the coronavirus, which causes the respiratory illness COVID-19, spreads around the world. As businesses evaluate how they can weather this storm while stopping the spread of the Coronavirus and treating their employees respectfully, there are some significant variances to know in regards to potentially downsizing your workforce. What is the difference between a furlough, a layoff and a reduction in force?
All three of these terms describe directives that are intended to achieve cost savings by reducing a company’s expenses. Even though the terms have been used interchangeably, their true meanings and definitions are quite different.
A furlough is a mandatory suspension from work without pay but considered to be an alternative to layoff. How long does a furlough last? It all depends on the employer and can be as brief or as long as the employer wants. Employers often decide to furlough, rather than layoff, workers because firing and hiring people is costly. When an employer furloughs its employees, it requires them to work fewer hours or to take a certain amount of unpaid time off. Furloughs can affect nonexempt and exempt employees differently though, listed below are some examples.
- Nonexempt example: an employer may furlough its nonexempt employees one day a week for the remainder of the year and pay them for only 32 hours instead of their normal 40 hours each week.
Another method of furlough is to require all employees to take a week or two of unpaid leave sometime during the year. Employers must be careful when furloughing exempt employees so that they continue to pay them on a salary basis and do not jeopardize their exempt status under the Fair Labor Standards Act (FLSA). A furlough that encompasses a full workweek is one way to accomplish this, since the FLSA states that exempt employees do not have to be paid for any week in which they perform no work.
- Exempt example: some presidents and CEOs, have announced that their own salaries will be suspended for the rest of the year and senior executives’ salaries will be reduced by 50%. The theory and example being that the majority of employees share some hardship as opposed to a few employees losing their jobs completely.
An employer may require all employees to go on furlough, or it may exclude some employees who provide essential services but again furloughs are mandatory and many furloughs announced due to coronavirus are for lengthy periods of time. Workers are ordered not to do anything work-related while they are on furlough.
A layoff is the termination of the employment status of a hired worker. This is an action initiated by the employer. The former employee may no longer perform work related services or collect wages. Layoffs are a time-tested means of cutting organizational costs; reducing staff can have an immediate and substantial impact. Because “people” costs, compensation and benefits, typically represent half of a company’s total operating expenses.
An employee is laid off because there is not enough work for him or her to perform. The employer, however, believes that market conditions could change and may recall the person back to work when work becomes available. Employees are typically able to collect unemployment benefits while on an unpaid layoff.
Reduction in Force
A reduction in force (RIF) is defined as a separation from employment due to lack of funds, lack of work, redesign or elimination of position(s) or reorganization. There is not the likelihood or expectation that the employee will be recalled because the position itself has been eliminated. A layoff can often times turn into a RIF which can be accomplished by terminating employees or by means of attrition. Many employers use the term layoff as a synonym for what is actually a permanent separation, this may be confusing to the affected employee because it implies that recall is a possibility and employees will put off looking for any new permanent job opportunities. In actuality, a layoff is defined wholly different and explained above. Employees are eligible to apply for unemployment following a RIF.
Additionally, The Centers for Disease Control (CDC) have developed an Interim Guidance for Employers on COVID-19 which is a great resource for all companies.
Lastly, be clear about your company’s HR policies regarding employee separations. Be sure not to misrepresent information to your employees. If you need help wading through the ever changing laws surrounding the Coronavirus Pandemic, please feel free to reach out to HR On-Call.
A little more about us: Susan Arnold, owner and lead HR Consultant at HR On-Call, LLC. Susan has 20+ years of HR experience and provides a HR presence to business organizations without the overhead expense of a full-time employee. Susan helps business owners improve employer/employee relationships and allows them to focus on their business while resting assured that they are in full compliance with state and federal law. Areas of expertise:
- Reduce Employer Risk and Liability
- Customized Employee Handbooks
- Performance Reviews
- Improve Employee/Employer Relationships
- Background Checks
- Personality Assessments
- Guaranteed EEO Compliance
- Employee Retention
- Recruitment / Hiring
- Employee Discipline/Discharge
Susan is passionate about her customers and listens to their needs. If you are interested in any of the details above or would like more information about her services, please contact Susan! If you have questions on how your specific policy should read or need help navigating a certain instance, contact HR On-Call, LLC.