Layoffs, Furloughs and Terms for Small Businesses


If you’re confused about your options around staff reductions during the COVID-19 crisis, stay tuned.

Today we’re going to focus on your staff reduction options during an economic downturn.

When the US economy came to a halt on a dime, we all looked around and tried to figure out what to do next?

Revenue stopped, and a lot of businesses were forced to close up shop overnight.

So, of course we all immediately tried to figure out how to reduce or halt expenses, 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

But, if, after the calculation is made, the employee is eligible for even $1 in unemployment benefits, they’ll also be eligible for the new expanded federal unemployment benefit of $600 per week.

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.

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 if $960 per week

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 – a lot of them have relaxed eligibility standards during this emergency

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.

“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 if $960 per week”

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 will 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

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,

this holds true for furloughed employees as well.

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 has to remain in the employee’s leave bank.  Because, if they return to work within 12 months, their sick pay has to be reinstated.

Additionally, also be aware that technically, a direct deposit election becomes void upon termination – so the recommendation is that all final pay be provided via hard copy check.

Of course this may prove difficult during the current emergency, so check with your labor counsel to see what kind of alternative might be feasible.

Other considerations are the WARN Act, both at the federal and state levels.

At the time of this episode, April, 2020 – both the federal and California WARN act requirements have been partially or completely suspended

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, we suggest you check with your labor counsel to determine if your employment action might invoke WARN act responsibilities, and what those specific responsibilities are.

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.

If 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

Keep in mind, California now requires all residents be covered by insurance.  To that end, during this emergency they have extended the Covered California open enrollment period through June 30, 2020

Terminated employees are also eligible for full unemployment benefits

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 is not suffering an adverse impact.  It is easy to forget this step and find out later that it appears that you have inadvertently discriminated against a protected group.

The preceding is provided for general informational purposes only, and not intended to constitute legal advice.

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