Today we’re going to have a bit of an HR 101 class. Well, because the question of layoffs has been put to me a number of times recently – so I thought we could take this episode to focus on staff reductions. What are your options.
Now, I’m not sure if or when we may face the next economic downturn. But I do know that when there’s a glitch in the economy, or a business’s revenue slows, leadership immediately tries to figure out how to reduce or halt expense. And for most of us, our payroll is our largest expense
There are various frameworks available for reducing your staff costs
You can reduce the hours of employees or cut salaries (sometimes called a partial furlough)
You can fully furlough employees, or you can do a layoff
Each framework has its own pros and cons and legal requirements
Reduced Hours – sometimes called a partial Furlough can be a reduction in hours per day, or a reduction in days per week.
You have to take different considerations into account when furloughing Non exempt (or overtime eligible) employees, and exempt employees:
Let’s start with non-exempt:
With partial working hours, unemployment will offset for the wages the employee would normally receive
In CA this is done by reducing the benefit by the amount the employee is paid
In some cases, this could possibly result in zero unemployment benefits for the employee
When you reduce a non exempt worker’s hours, make sure you keep everyone on an organized schedule
It not only helps in measuring productivity, but it allows you to ensure they’re paid for each hour worked
And, beware – California’s overtime rules of more than 8 hours in a day, and more than 40 hours in a week – well, they still hold true.
And, non exempt workers still have to receive the mandated meal and rest periods each day.
“…When you reduce a non exempt worker’s hours, make sure you keep everyone on an organized schedule.
It not only helps in measuring productivity, but it allows you to ensure they’re paid for each hour worked“
Now, on to exempt workers
Since exempt workers are not paid by the hour, the only framework available to reduce their payroll load is to reduce their wages.
Keep in mind, California’s current minimum wage for exempt workers is $1,240 per week (and I’m recording this in May of 2023).
And, since exempt workers are paid based on a weekly wage, any time worked during the week (even 5 minutes) results in a full week’s wage.
Another area of focus when you’re considering partial furloughs – is employee benefits.
Generally, anyone working 30 hours or more are considered full time for benefits purposes.
However, check with your insurance carrier.
Additionally, think about payment of premiums. The reduced wages may not cover the employee portion of the benefit premium.
You are not required to, but you might consider covering the full cost of coverage during this time.
Now, a full furlough is when you have employees stop work for a limited period of time, perhaps a week, a month or a few months
Some of the benefits of a full furlough include; the employee remains connected to the company; their benefits stay in tact – again you’ll have to consider the cost of premium payments
Also, when they apply for unemployment, they won’t have to look for other work – the assumption is you will call them back to their position
Another thing to keep in mind – when you put employees on full furlough, you’re required to provide final checks
California final pay guidelines require that, when an employee is released from work, their final check must be provided to them on their last day, and this holds true for furloughed employees as well.
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The CA Division of Labor Standards Enforcement has determined that a furlough lasting 10 days or more must be treated as a termination with respect to final wages.
A final check should include all wages due, including commissions, vacation pay, earned bonuses etc.
While sick pay doesn’t not be paid out, it does have to remain in the employee’s leave bank. Because, if they return to work within 12 months, their sick pay has to be reinstated.
Other considerations are the WARN Act, both at the federal and state levels.
Generally, the federally WARN Act applies to employers with 100 or more employee, who are laying off 33%, or 50 or more employees in a 90 day period.
The employer would then be required to provide the workers 60 days notice among other requirements.
The California WARN act applies to employers with 75 or more employees, who lay off or terminate 50 or more employees in any 30 day period. Again, the employer is required to provide 60 days notice amount other requirements
Again, I suggest you check with your labor counsel to determine if your employment action might invoke WARN act responsibilities, and what those specific responsibilities are.
And one final note about furloughed employees – they may not be allowed to perform any work at all, this includes answering eMails or phone calls. If they do, then they have to be to be paid for their working time, which might impact their unemployment status as well as your cash flow.
So, to summarize – f you do decide to lay off, or terminate, your employees the following would apply:
WARN act responsibilities
Final pay requirements
Vacation pay requirements
(Remember to maintain the employee’s sick pay balance for 1 year)
All benefit coverage will cease, and where applicable, the employee must be offered COBRA coverage
One additional point to keep in mind – if you decide to do a mix of layoff and furlough, review the demographics to ensure any one protected group isn’t suffering an adverse impact. It’s easy to forget this step and find out later that it appears that you have inadvertently discriminated against a protected group.