By R. Douglas Taylor, Jr., Bean, Kinney & Korman
The ongoing coronavirus public health crisis has pushed the U.S. economy into an uncharted economic downturn, with lightning speed. By some estimates, the country’s gross domestic production is expected to shrink by anywhere from 12.4% to as much as 40% in the second quarter, according to the U.S. Chamber of Commerce. Resulting workforce management questions are numerous, including employee wage and continuation of benefits requirements for employees who are furloughed or subject to a layoff.
By “furlough” we typically mean that an employer requires an employee to take unpaid leaves of absence, usually of a limited duration. In other words, the employee won't work or work reduced hours, and they won't get paid (except for time worked), but they'll still technically be employed with the employer. A layoff is generally a temporary or permanent discontinuation of employment. If permanent, a layoff effectively terminates the employment relationship. It may trigger payment of unused PTO and can be a COBRA qualifying event.
By “furlough” we typically mean that an employer requires an employee to take unpaid leaves of absence, usually of a limited duration. In other words, the employee won't work or work reduced hours, and they won't get paid (except for time worked), but they'll still technically be employed with the employer. A layoff is generally a temporary or permanent discontinuation of employment. If permanent, a layoff effectively terminates the employment relationship. It may trigger payment of unused PTO and can be a COBRA qualifying event.
Wage Payment Issues for Non-Exempt and Exempt Employees During a Furlough or Layoff
First, let’s consider the easy wage payment issue. Non-exempt or hourly employees can simply have their hours reduced and continue to be paid only for the reduced hours worked.
Now to the more nuanced considerations. As a rule, exempt or salaried employees subject to a furlough or layoff, must be paid their full salary for any week in which any work is performed. If a full week goes by and an exempt furloughed worker hasn't done any work, then the employer doesn't have to pay them their salary for that week. But, even if they just do one or two hours of work, they must receive their full weekly paycheck in order to maintain their exempt status under the FLSA. There are some narrow exceptions, for example, for full day absences due to a personal illness, which the DOL explains here.
Continuation of Benefits Issues for Furloughed Employees
In general, all eligible employees are still entitled to benefits while on furlough or layoff. However, it is fundamentally important for you as the employer to determine, based on the terms of your company’s group benefit plan, which of your employees will remain eligible for benefits under the plan while on furlough.
For example, most group benefit plans require employees to be “actively at work” and working full-time hours (e.g. 30 or more hours per week) to be eligible for coverage under the plan. This means that employees who have had their hours substantially reduced or eliminated (even temporarily) below 30 per week may not meet the plan’s definition of active full-time and thus may not be eligible to continue with benefits under the plan after a period of time.
At the end of the “actively at work” period, plan coverage will terminate, and the affected employee will usually be eligible for COBRA. The terms and conditions for group benefit plans are not standardized; you should reach out to your insurance broker or plan administrator to determine how the terms of your group benefit plan will impact the employees who have been furloughed.
Payment of Benefits During a Furlough or Layoff
For employees who remain eligible for group medical coverage under the plan, there are a few options for how their health plan premiums can be paid. First, an employer can cover the premiums for the furloughed employees in order to keep coverage in place. When the employees return, the employer may attempt to recover the employee’s share of the cost of the continued coverage from the employees.
Alternatively, an employer may send an invoice to covered employees during the period of leave, asking the employees to remit premium payments on an “after-tax” basis.
Other potential arrangements that employers may think about include “pre-payment” of premiums on a pretax basis or automatic deductions from pay upon return from leave. Relevant state law needs to be reviewed as well before making any decisions about automatic deductions from pay. Virginia law requires written authorization, signed by the employee, before you can make deductions of this kind.
Bean, Kinney & Korman’s COVID-19 Resource Center has additional employment information plus other resources for businesses and individuals.
First, let’s consider the easy wage payment issue. Non-exempt or hourly employees can simply have their hours reduced and continue to be paid only for the reduced hours worked.
Now to the more nuanced considerations. As a rule, exempt or salaried employees subject to a furlough or layoff, must be paid their full salary for any week in which any work is performed. If a full week goes by and an exempt furloughed worker hasn't done any work, then the employer doesn't have to pay them their salary for that week. But, even if they just do one or two hours of work, they must receive their full weekly paycheck in order to maintain their exempt status under the FLSA. There are some narrow exceptions, for example, for full day absences due to a personal illness, which the DOL explains here.
Continuation of Benefits Issues for Furloughed Employees
In general, all eligible employees are still entitled to benefits while on furlough or layoff. However, it is fundamentally important for you as the employer to determine, based on the terms of your company’s group benefit plan, which of your employees will remain eligible for benefits under the plan while on furlough.
For example, most group benefit plans require employees to be “actively at work” and working full-time hours (e.g. 30 or more hours per week) to be eligible for coverage under the plan. This means that employees who have had their hours substantially reduced or eliminated (even temporarily) below 30 per week may not meet the plan’s definition of active full-time and thus may not be eligible to continue with benefits under the plan after a period of time.
At the end of the “actively at work” period, plan coverage will terminate, and the affected employee will usually be eligible for COBRA. The terms and conditions for group benefit plans are not standardized; you should reach out to your insurance broker or plan administrator to determine how the terms of your group benefit plan will impact the employees who have been furloughed.
Payment of Benefits During a Furlough or Layoff
For employees who remain eligible for group medical coverage under the plan, there are a few options for how their health plan premiums can be paid. First, an employer can cover the premiums for the furloughed employees in order to keep coverage in place. When the employees return, the employer may attempt to recover the employee’s share of the cost of the continued coverage from the employees.
Alternatively, an employer may send an invoice to covered employees during the period of leave, asking the employees to remit premium payments on an “after-tax” basis.
Other potential arrangements that employers may think about include “pre-payment” of premiums on a pretax basis or automatic deductions from pay upon return from leave. Relevant state law needs to be reviewed as well before making any decisions about automatic deductions from pay. Virginia law requires written authorization, signed by the employee, before you can make deductions of this kind.
Bean, Kinney & Korman’s COVID-19 Resource Center has additional employment information plus other resources for businesses and individuals.
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