There is a significant amount of confusion around three major human resource topics: Furlough, Layoff, and Reduction in Force (RIF). These terms are also often used interchangeably—which doesn’t help clarify things on either side!
As a business owner, it is very important to know the differences and how to properly handle each one. Let’s start with a video breakdown of the differences between a furlough, layoff, and RIF.
- Furlough: Temporary leave-of-absence imposed by the employer that is typically unpaid for a short period of time
- Layoff: Temporary cease of employment for a longer period of time (i.e., several months) with the intent to recall an employee to work
- Reduction in Force: More commonly known as downsizing; permanent termination of employment in an effort to reduce costs for an employer
Now, we’re going to take a deep dive into each of these solutions. Keep reading to learn what each one means, why employers use them, how to properly implement them, and how to handle employee benefits.
Furloughing employees is a good alternative to laying them off, particularly when you know it will only be for a brief and defined period of time.
What is a furlough and when is it used?
A furlough is generally unpaid, although in some cases may be partially paid. This form of leave typically lasts for a few weeks at most, meaning employees have either a scheduled length of time or call-back rights and expectations. A company makes this decision when trying to save money by lowering salary expenses.
Employee furloughs can occur in both public- and private-sector organizations. Furloughs are often cyclical and some businesses may have regular furloughs based on the time of year.
Other examples of furloughs include reducing employee time on the job from four to three weeks a month and asking employees to take a certain number of days off each month without pay. In some instances, furloughs can also be indefinite.
How to Implement a Furlough Effectively
Employers should pay attention to when they enact a furlough regarding exempt employees (i.e., employees who are paid a set salary every week). It is important to continue paying them on a salary basis, so as not to jeopardize their exempt status under the Fair Labor Standards Act (FLSA). The easiest way to stay compliant is to put a furlough in place that encompasses a full workweek since the FLSA states that exempt employees do not have to be paid for any week in which they perform no work.
You can choose to let employees use their vacation time/paid time off, but you are not required to say either way. This could be a way to help employees offset some of their costs during a furlough.
Finally, implement specific no-work rules during a furlough to ensure you will not have to pay any furloughed employees. An exempt employee who simply answers an email is entitled to pay. Even nonexempt employees (i.e., those entitled to overtime page who are generally paid an hourly rate) who perform any work during furlough must be paid for the time worked. It’s important to enforce a no-work policy to ensure your organization actually saves money during a furlough.
How to Handle Employee Benefits
An employer is generally required to maintain an employee’s benefits during a furlough, which is one of the main differences between this option and a layoff. This means medical, vision, and dental insurance should be covered.
As an employer, there are different ways you can manage the deductions on the benefits you pay. Visit the BlueLion YouTube channel for videos with tips on maximizing these deductions and be sure to subscribe to stay updated.
The first thing to note here is that being laid off is NOT the same as being fired or permanently terminated! It is actually another temporary situation.
What is a layoff and when is it used?
A layoff is a temporary separation from payroll that takes place when there is not enough work for the employee to perform. The intention with a layoff is to recall or rehire the employee, usually within several months once work becomes available again. The length of a layoff is one of the main differences between this and a furlough.
Layoffs occur regularly in some industries, such as landscaping and construction in the winter when the weather does not allow for outdoor work.
How to Implement a Layoff Effectively
Employees who have been temporarily laid off should receive a return-to-work date and are eligible to collect unemployment.
Additionally, employees who are laid off have the option to use any accrued paid time off, unless you have a policy stating otherwise. We highly recommend putting a policy in place for this if you do not already have one. In New Hampshire, if you do not have a policy, you are required to pay out the employee’s paid time off. In Massachusetts, you are required to pay any accrued time off.
How to Handle Employee Benefits
You as the employer have the choice to either continue paying for a laid-off employee’s benefits (medical, vision, and dental) or ending their benefits coverage and complying with COBRA. This means you’ll need to notify them in the proper timeline and giving them all of the information they need to obtain COBRA insurance coverage.
Employers often choose to continue providing benefits coverage to employees while on an unpaid layoff for a set amount of time as an incentive to remain available for recall. At the end of the day, it is a decision your organization can make based on your resources and financial situation.
Reduction in Force (RIF)
And finally, we are onto the term most often confused with a layoff.
What is a Reduction in Force and when is it used?
A reduction in force, or downsize, is essentially a permanent termination. When an employer carries out a RIF, they have no intention of calling the employee(s) back to work.
RIFs occur in different situations, such as when a company needs to reduce its staff for economic reasons or following a merger when a business needs to eliminate redundancies (e.g., two accounting departments).
How to Handle a Reduction in Force
Make sure you comply with all of the state mandates regarding:
- Paying out vacation time based on the employee’s accrued time on the last day of employment.
- COBRA the benefits based on whether it’s the last day of work or the end of the month.
- Informing the employee that they are eligible to collect unemployment benefits through the state (depending on what the waiting period is).
- Rules and regulations about delivering an employee’s final paycheck.
Since a RIF is a permanent termination and a difficult situation, employers should be certain they are prepared and in compliance with all of the above in order to conduct as smooth of a process as possible.
Which Solution is Right for Your Business?
There could be many reasons you are considering a furlough, temporary layoff, or reduction in force for your business. Regardless of the reason, it can be challenging to handle these personnel changes effectively while making sure your organization is staying compliant. This breakdown and explanation of each type of leave should give you a better understanding of which one you need for your situation.
Whether you need further assistance putting furlough or layoff policies in place or you’re looking for more guidance on conducting one of the above, BlueLion will be happy to help. Contact us today at 603-818-4131 or email [email protected] to schedule a consultation!