One of the most difficult decisions an employer can make is to lay off employees. However, sometimes it's a necessary decision for the best interests of the business. When faced with a layoff, consider the following to help you manage the process.
Review the selection criteria carefully.
Before implementing a layoff, work with legal counsel to review your selection criteria and reasons for conducting the layoff. Federal, state and local laws prohibit employers from discriminating against individuals because of age, race, national origin, sex, pregnancy, disability and certain other characteristics. As such, employers must conduct layoffs without violating these, and other applicable laws. Layoffs must be based on nondiscriminatory reasons, such as quality or quantity of work, rather than a protected characteristic, and all decisions should be documented.
Provide advance notice.
Several laws govern what type and how much notice employers need to give their employees prior to a layoff. For example, the Worker Adjustment and Retraining Notification (WARN) Act helps ensure advance notice in cases of qualified plant closings and mass layoffs. In addition, several states have mini-WARN laws, some of which require more notice and/or cover a wider array of closures and/or apply to smaller businesses. Absent a specific notice requirement, provide as much notice as possible.
Furnish separation notices.
Several states require employers to provide a separation notice detailing, among other things, the reason for, and date of, the separation. In some cases, these notices are given to the employee, but some states require employers to send the notices directly to the state unemployment agency. Some states also require employers to provide written information about unemployment insurance benefits or an unemployment insurance pamphlet to employees at the time of separation. Employers may also be required to provide notices about certain other benefits. Check your state requirements to ensure compliance.
Comply with final pay requirements.
There are federal and state rules for providing final pay to employees. Additionally, depending on your state, you may be required to include accrued, unused vacation and paid time off in the employee's final pay. Make sure you comply with all applicable requirements.
Under federal law, final pay is generally due by the next regular payday, but many states require final pay sooner. In some cases, this timeframe differs depending on whether the employee initiates separation (voluntary termination) or the employer initiates separation (involuntary termination).
For example, California requires final pay immediately for involuntary terminations, such as layoffs. For voluntary terminations, California requires final pay within 72 hours. However, if the employee provides at least 72 hours of notice, final pay is due on the employee's last day.
Check your state law to ensure compliance, and keep a record of when you provided the employee with their final pay.
Provide benefits information.
If the employee is enrolled in group health insurance sponsored by your company, a layoff may entitle the employee to health insurance continuation (or "COBRA"), which triggers certain notice requirements. Work with your health insurance provider to ensure compliance. If the employee is enrolled in a company retirement plan, you should also provide information on their options after leaving (such as cash out, roll over, or keeping the plan as is).
Ensure any separation agreements comply with applicable laws.
Work with legal counsel if you’re considering presenting separated employees with any type of severance agreement upon termination.
Confirm mailing address.
Make sure you have the correct mailing address for sending the departing employee's Form W-2 and other pertinent information in the future. Ask the employee to verify their current address and to notify you if they have a change in address.
Notify key staff and contacts.
Prepare a list of the staff, key clients and contacts who should be aware of the employee's departure. Explain who will be handling the departing employee's work responsibilities in the future, and identify a contact who can address any questions they may have. Work with co-workers to identify the resources they need to handle any extra work as a result of the departure. In general, avoid disclosing the reason for the employee's departure.
Prepare for unemployment claims.
In most cases, employees who experience a company-initiated termination are eligible for unemployment. Once a former employee has filed a claim for unemployment benefits, you will receive written notice from the state unemployment agency.
Conclusion
Layoffs must be handled with extreme care to ensure compliance with federal, state and local requirements, and to help the employer navigate difficult time periods. Consider the steps provided here, to help you manage the process.
Final Pay: What Employers Need to Know
When an employee leaves an employer, federal and state laws dictate when the employer must provide the employee with their final pay, where it must be delivered to, and what the pay must include. Here are some considerations about final pay.