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Furloughs: 'How Are They Different than a Layoff?' and Other FAQs

Furloughs can be an effective way to cut costs during times of decreased business activity. However, employers should think through the decision carefully with special attention paid to pay, benefits, and other issues. Here are answers to frequently asked questions related to furloughs.

Q: What is a furlough … and how are furloughs and layoffs different?

A: There isn't a universal definition, though the term "furlough" is loosely used to refer to a reduction in the number of days or weeks that an employee works because of a decline in business activity. In other words, the employee takes unpaid time off, usually for a short-term, and sometimes defined, period. By contrast, the term "layoff" is typically used by employers to refer to an indefinite long-term or permanent separation from employment. The key point to remember is that both furloughs and layoffs may trigger notice, pay, benefits, unemployment, and other compliance obligations.

Q: Do I have to pay non-exempt workers during furloughs?

A: Non-exempt employees are generally paid on an hourly basis and must be paid for all time spent working. Provided non-exempt employees perform no work during a furlough, there is no requirement to pay them. However, if a non-exempt employee performs work during a furlough, they must be paid for all time spent working.

Q: Do I have to pay exempt employees during furloughs?

A: Under the Fair Labor Standards Act (FLSA), exempt employees must receive their full salary in any workweek in which they perform any work. Therefore, unless a furlough lasts a full workweek, exempt employees must receive their full salary. For this reason, employers generally furlough exempt employees only in increments of full workweeks.

Q: How can I prevent employees from performing work during furloughs?

A: Employees should be instructed to avoid checking email or performing any other work during the furlough period. However, if employees do perform work (even without permission), they must be paid. Exempt employees who perform any work during a furlough must be paid their full salaries. Non-exempt employees need only be paid for the time actually spent working and should be instructed to accurately report all time spent worked.

Q: How do I decide who to furlough? Can I furlough employees based on their risk from COVID-19?

A: All decisions must be neutral and job-related, and not based on protected characteristics, such as age, race, pregnancy, or other factors unrelated to the job, such as who might be more susceptible to contracting COVID-19. Make sure to document your objective, job-related reasons for determining which employees to furlough.

Q: Do I have to allow employees to substitute paid leave during a furlough?

A: Under federal law, there is no requirement for employers to permit employees to substitute paid leave for the time missed because of a furlough. In fact, to maximize the cost savings of a furlough, some employers prohibit employees from substituting paid time off. Your policy on the substitution of paid leave should be developed in accordance with applicable law and communicated to employees in advance.

Note: If the employer were to close for a reason other than a decline in business activity, certain leave laws may come into play. For instance, several state and local laws require employers to provide leave to employees when a business is closed by a public health official due to a health emergency. Check your state and local laws for details and make sure your policy complies with applicable laws.

Q: Are furloughed employees entitled to emergency paid sick leave and public health emergency leave/expanded FMLA under the Families First Coronavirus Response Act (FFCRA)?

A: The Department of Labor (DOL) has explained (see Question 26) that if an employee is furloughed because the employer doesn't have enough work, the employee isn't entitled to then take paid sick leave or expanded family and medical leave under the FFCRA.

Q: How does a furlough affect health and other benefits?

A: A furlough could have ramifications on employee benefits, particularly those that use hours of work to determine eligibility. Review your healthcare, 401(k), and other plans to determine whether a furlough will impact employees' benefits. If employees' benefits will change as a result of a furlough, be sure to provide them with adequate notice in accordance with the provisions of the plan and applicable law. For instance, employees who will have benefits discontinued will likely need to receive a health insurance continuation (or "COBRA") notice.

Q: Does a furlough trigger "final pay" requirements?

A: Some states have final pay laws that may be implicated by a furlough. Final pay rules differ from state to state, so check the law in the state where your employees work. Generally, though, short-term furloughs with a definite return date (that is clearly communicated to employees) don't trigger final pay requirements. Thus, any pay owed to the employee would be due on their next regular payday. However, some states may have stricter rules. For example, in California, a furlough longer than 10 days or a normal pay period (if shorter) should be considered a layoff. If it is a layoff (i.e., no work for longer than 10 days or a normal pay period), final wages and all accrued but unused vacation and PTO must be paid out immediately. If final wages and accrued but unused vacation and PTO aren't paid out, the employer may owe waiting time penalties.

Q: Are furloughed employees entitled to unemployment compensation?

A: Depending on the state, the length of the furlough, and the employee's work history, a furloughed employee may be eligible for unemployment benefits. For instance, while a furlough is generally a qualifying reason to collect unemployment benefits, some states have a waiting period before workers can file. In states with such a waiting period, an employee wouldn't be eligible for jobless benefits if the furlough fell entirely within the waiting period. Check your state law, communicate with employees regarding their eligibility for unemployment benefits, and provide any required notice and information accordingly.

Many states have adopted shared-work programs to provide employers with an alternative to layoffs. Under these programs, the employer temporarily reduces the hours of a group of employees, and the affected employees collect partial unemployment benefits.

Q: Do I have to provide advance notice to furloughed employees?

A: Several laws may govern what type and how much notice employers need to give their employees if they are forced to close temporarily. 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. Due to COVID-19, states may suspend or alter these requirements. For example, on March 17, 2020, California's Governor signed an Executive Order relieving California employers of the 60 day notice requirement while California is in a state of emergency. However, employers still must provide notice as soon as practical and meet additional requirements as well. Because the COVID-19 situation is so fluid, employers are encouraged to check with counsel to make sure they are following the most current guidance.

Additionally, some states require advance notice of any reduction in pay. Absent a specific notice requirement, employers should provide as much notice as possible.

Note: Some states and local jurisdictions have enacted predictive scheduling laws. These laws generally require employers to follow certain scheduling practices, including providing a certain amount of advance notice before making changes to employees' schedules. Be sure to check to see if you are subject to such a law. Some jurisdictions, including Oregon, are providing guidance on these laws in light of COVID-19.

Q: How do I communicate a furlough to employees?

A: Be clear with employees about what the furlough is (i.e., unpaid time off), why it's being implemented, who will be affected, what it means for benefits, that employees are prohibited from performing any work during the furlough, and where they can go if they have any questions. If known, provide an anticipated return date but be clear that this is an estimate and could change at any time and isn't guaranteed. For COVID-19 related furloughs, we created a sample furlough notice, which can be found here.

Q: Should I complete "new hire" paperwork for employees who I bring back after a furlough?

A: Various laws and regulations require that employees complete certain paperwork and provide certain notices at the time of hire. Some of these laws address situations in which an employee is returning after a furlough or layoff. For instance, an employer won't generally need to complete a new Form I-9 (to establish identity and work authorization) if the worker is continuing in their employment and has a reasonable expectation of employment at all times due to a temporary layoff for lack of work. If this standard cannot be met, the employer must follow the instructions for "rehired" employees in the USCIS Handbook for Employers. For other new hire paperwork and notice requirements, employers should check applicable laws and regulations to determine if/how they address employees who are returning to work.

Q: Would a furlough impact forgiveness of a loan I obtained through the Paycheck Protection Program (PPP)?

A: It could. By way of background, the PPP was enacted to provide employers with funds to continue operations and payment of wages during the COVID-19 pandemic. These loans can be fully forgiven if certain conditions are met, including at least 60 percent of the loan being used to cover payroll expenses. Borrowers must also maintain specific staffing and pay levels. If staffing and pay levels aren't maintained during the covered period, the forgiveness amount may be reduced.

However, in an interim final rule issued earlier this month, the SBA said that loan forgiveness amounts won't be reduced, even if employee counts or wage levels decreased during or after the covered period, as long as the loan was $50,000 or less. For more information on the PPP and loan forgiveness, visit our COVID-19 Resource Center.

Conclusion:

With COVID-19 still impacting the country, furloughs will continue to be an option for helping employers adjust to fluctuations in business activity. However, furloughs are not without their own set of challenges. Employers planning to implement a furlough should have a plan in place to implement them effectively and in compliance with applicable laws.

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