Reinstating Pay and Benefits for Laid Off and Furloughed Employees

If you cut an employees’ pay, or furloughed or laid off employees, keep these things in mind as you begin to re-hire

now-hiring
Returning employees to work after COVID-19 can present a myriad of issues. Don’t be caught out of compliance as you begin to re-open your business.

Small business owner Michael Lowe made the dreaded call recently. “With us being a physical shop, if we can’t work on cars, we can’t do our job. This has meant that some of the employees have had to be furloughed, which was tough.”

Michael is not alone. To stay afloat during the coronavirus crisis, businesses nationwide have reduced employee hours and salaries as a cost-saving measure. In industries particularly hard hit by social distancing measures, like restaurants, hospitality, and beauty services, business owners have laid off or furloughed entire payrolls as revenues bottomed out.

“Our company has decided to have all employees work from home during the shutdown and reduce their hours by half. Like many businesses, this has been very challenging for us” said Small Business Owner Marcus Anwar.

As conversations about a return to work continue, business owners are wondering what it means for employees who’ve had pay or hours cut, or have been laid off or furloughed.

Do you have to restore salaries?

For employers with at-will employment — that is, without a contract or collective bargaining agreement — the answer is no. But there are a few things to consider.

  • If a reduction in salary puts an employee’s pay below $684 per week ($35,568 per year), they become exempt employees, and business owners must keep track of their hours and pay overtime.
  • Short-term, week-to-week pay fluctuations meant to “evade the salary basis requirements” are impermissible by the Department of Labor.
  • Pay cuts cannot put an employee’s pay below the state minimum wage.

Another consideration is the long-term effect of pay cuts. In previous economic downturns, employers tended to favor layoffs and furloughs to reduced pay because the latter affects morale. Salary cuts also encourage top performers to seek work elsewhere.

What happens to benefits when you bring employees back?

It depends on state law and whether they were laid off or furloughed.

Furloughed employees are still on payroll and retain benefits in most states. Whatever earned benefits these employees have accrued (paid time off, paid sick leave, family leave, etc.) must be reinstated upon return to work.

Furloughed employees are still on payroll and retain benefits in most states. Whatever earned benefits these employees have accrued (paid time off, paid sick leave, family leave, etc.) must be reinstated upon return to work. 

Employees who have been laid off face a different fate. Essentially new hires, these individuals must go through the onboarding process and start from scratch. However, some states have laws mandating that an employee who has been terminated and brought back to work within a certain period of time retains their earned benefits. In Washington, for example, employees terminated and rehired within a 12-month period get to retain their accrued paid sick leave from previous employment.

How do you incentivize employees making more on unemployment?

In some states, it’s easy. With Iowa, Missouri, and Oregon, among others, planning to cut unemployment benefits for those who are called back to work, SBOs in these states won’t have a problem.

But elsewhere it could be more challenging. 

“Businesses looking to reopen are telling us their employees don’t want to come back to work because they collect more on unemployment … And who can blame them?” said Florida Senator Rick Scott in a recent fundraising email.

Some employers believe workers will favor security over the short-term boost from unemployment.

“We are encouraging employees to utilize all the unemployment benefits with the extra $600 so they can sustain themselves while on furlough, but the additional money on UE will not last past July 31st,” says Amber of DevelopIntelligence.

“We are hopeful employees will want a stable job after that time period. If they decide to not come back, we understand, but they will all be welcome to reapply for positions that open.”

“We are hopeful employees will want a stable job after that time period. If they decide to not come back, we understand, but they will all be welcome to reapply for positions that open.”

Anwar reduced his full-time workers to part-time status due to a drop in cash flow. But he’s qualified for a loan and plans to downsize their office lease to free up additional money for payroll.

“As much as the coronavirus has been mortifying, a key lesson we’ve learned is that we don’t need a big office,” he said. “Most of our employees are programmers, graphic designers, and writers. With a smaller office, we’ll save over six figures per year. We can then use that money to offer our employees raises and bonuses.”

President of small business Wikilawn, Dan Bailey, says their company is doing everything they can to take care of employees. They’ve cut salaries by 10% across the board in order to keep everyone on payroll and help them retain their benefits. He hopes it will be enough for them to weather the crisis and soon-after restore salaries and offer backpay.

“It’s optimistic, perhaps, but I want to do right by our employees. Many of them have been with me from the start. They’re working hard despite everything being so crazy, and they deserve to be taken care of.”

Bookmark(0)

Might also interest you