Layoffs and furloughs are an unfortunate by-product of the global economic collapse brought on by the COVID-19 pandemic.
The unemployment rate in the United States is expected to average close to 14% during the second quarter and WorldatWork’s “COVID-19 Quick Polls” revealed in early April that 21% of organizations were planning workforce reductions.
Many employers are making reductions or implementing furloughs out of necessity but are still attempting to navigate how to best approach the situation. To assist, WorldatWork hosted an Expert Insight, “COVID-19: Untangling the Differences Between Furloughs, Layoffs and Reductions in Force,” presented by Willis Towers Watson’s Adrienne Altman, managing director and North American talent and rewards leader, Josephine Gartrell Esq., director of talent and rewards, and Brian Shaw, director of absence, disability management and life.
The presentation noted there are three distinct stages that require efforts to protect and preserve, regenerate and sustain human capital value as companies deal with the COVID-19 crisis.
- Managing through the crisis: during this stage, companies need to protect and preserve human capital value.
- Restoring stability: in this stage, companies need to regenerate human capital value.
- Operating post-crisis: in this stage, companies need to sustain human capital value.
The presenters cited Willis Towers Watson research that 39% of companies have implemented or have plans to implement some form of furloughs and 85% of publicly announced furloughs are indefinite. Additionally, 75% of employers expect at least 90% of furloughed employees to return to work.
Such workforce actions are becoming a common approach to managing costs in the pandemic, therefore, it’s important to understand the terminology:
- Furlough: A temporary requirement that employees either work fewer hours or take a certain amount of unpaid time off.
- Layoff: A permanent separation from payroll and employment due to insufficient work available for some employees. The position is not eliminated.
- Reduction-in-force: A permanent separation from payroll and employment. The position is eliminated.
Gartrell explained that when it comes to furlough program design, there are many elements to consider. Employers should consider the type of furlough — weeks or months at a time vs. a day or two per week — and PTO can be used at first in this arrangement, followed by no compensation afterward. Employers should also consider whether the employee is exempt or non-exempt, the pay impact as it relates to Fair Labor Standards Act status of employees and “no work rule,” and how it affects each employee’s benefits.
Gartrell cautioned that if the furlough lasts six months or longer then it can trigger a WARN Act violation, which varies by state. However, it has been waived by some states, such as California, in response to the pandemic.
As it relates to layoffs and reductions-in-force (RIF) decisions for employers, there are multiple compensation and benefits levers to consider when developing a program. For compensation, what might that mean with severance or long-term incentives? For benefits, there’s PTO payouts, medical and dental considerations, retirement plan considerations and life insurance.
The presentation compared the pros and cons of a voluntary layoff/RIF program and involuntary layoff/RIF program:
- Voluntary: With this option, an organization may not achieve the desired staff and cost reduction and it could result in the wrong staff leaving. However, the message will likely be better received by employees.
- Involuntary: This option targets specific populations more effectively and is better suited to achieving targeted reductions in staff and cost. It does, however, send an organizationally driven message about cost reduction.
Whichever way an organization goes about furloughs, layoffs or RIF, it’s important to be cognizant of diversity and inclusion while doing so, Gartrell said, as you don’t want to be perceived as targeting a particular class of people.
CARES Act Consideration
The implementation of the federal CARES Act provides for an additional $600 weekly on top of states’ unemployment benefits up to July 31. Thus, Gartrell said, many companies are likely to furlough workers until July 31 if they determine that a certain class of workers is actually better off collecting unemployment with the assistance of the CARES Act.
This also extends unemployment coverage by 13 weeks, but organizations should first confirm that employees are eligible for state unemployment, as that’s the only way they’ll receive coverage under the CARES Act. Generally, there is a one-week waiting period for individuals obtaining unemployment insurance. However, several states have waived the non-payable one-week waiting period for regular benefit payments to eligible individuals affected by current disasters. This means individuals can be paid benefits for the first week they are unemployed due to the disaster.
However an organization decides to go about these difficult decisions, it’s recommended to approach it in this order:
- Provide an initial communication notifying impacted employees.
- Make the announcement to the entire organization that gives a rationale for the decision while doing so empathetically, and explain what’s next.
- Provide program details and FAQs for the impacted employees that cover the impact on key benefits, how to apply for unemployment, FMLA, ongoing support services, logistics, additional resources and any next steps.
Lastly, beyond the employee-facing rollout, it’s critical to consider the preparation needed for leaders, management and HR to be aware of the plan and able to answer employee questions.
For a more in-depth understanding of how organizations can navigate furloughs, layoffs and RIFs during COVID-19, access the full presentation, which is free for WorldatWork members.
About the Author
Brett Christie is the managing editor of Workspan Daily.