Creative Staffing Solutions: Paid and Unpaid Leave, Layoffs, and More

Posted March 23, 2020 by Justworks in Managing Your Team
COVID-19 has caused many business owners to face difficult decisions when it comes to staffing. In this post, we hope to help you understand some of your options.

COVID-19 has caused upheaval in all corners of life, and the small business community is no exception. Business owners are facing uncertainty as to what their staffing needs will be. Remote work, while perfectly feasible for many business models and roles, may be untenable for other companies or teams.

You might be having to face the painful reality of reductions in employees’ working hours, or cutting positions altogether. These decisions are difficult to make. In this post, we hope to help you understand some of your options. With any of these options, you will need to consider how your course of action may implicate obligations you may have under federal, state, or local law, or under your company’s own policies and other terms and conditions of employment.

Bear in mind that the regulatory landscape around issues such as PTO and leave is fluid and may change quickly, as legislators at every level of government continue to address COVID-19. Take a look at our Help Center to learn more about the Families First Coronavirus Response Act, and visit our Guide to Navigating COVID-19 for additional resources, which we’ll be updating as more information becomes available.

Keeping People on Payroll

The ideal approach for employers who are able to do so is to keep your people working and on the payroll. Here are some ideas for doing just that.

Rethink Responsibilities When Possible

Certain roles may not have much to do in the event of an office closure. If you can afford to keep them on the payroll, try to think of creative solutions for other responsibilities or duties they can take on in the interim. Maybe they can help develop employee training, take web-hosted job training, study for a professional certification, or help with other administrative tasks your company might need support with.

Transitioning from an office-based work environment to large-scale remote working arrangement may have tremendous logistical implications. Be creative about using your existing people to make the transition as seamless as possible.

Also consider investing in this time to expand your staff’s professional horizons. Look internally to see where existing, if temporarily underutilized, talent may be able to transition to higher-demand openings at the company.

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Paid Leave

Your company may already provide employees with some vacation or sick leave. You may also be required by state or local law to provide some amount of paid sick leave, which may or may not cover COVID-related absences. Additionally, the federal government and state governments — New York, for example — are moving quickly to require certain employers to provide employees with PTO or partially wage replacement for certain COVID-related absences. In any event, you should consult legal counsel regarding how these different laws impact your obligations to your employees.

Regardless, there are some things you can consider to provide more flexibility for your employees. Consider allowing healthy employees that are unable to work due to COVID-19 to use their paid sick leave, even for reasons not covered by your policy or otherwise guaranteed under applicable law. If your business can afford it, consider drafting a supplemental paid leave policy for your employees who have reduced or eliminated working hours due to the spread of COVID-19. Full or partial income replacement will go a long way in maintaining your employee’s financial health through this difficult time.

Pay Reductions

If you find yourself unable to sustain your full payroll, you may be considering reducing pay for your employees. This can also present a complicated situation, so here are some things to keep in mind.

First, and most importantly, never retroactively reduce pay for hours that have already been worked at a determined rate.

Additionally, a non-exempt employee’s hourly rate of pay can never fall below the applicable minimum wage. For salaried non-exempt employees, this means their weekly salary divided by the number of hours worked in any given week cannot be below minimum wage either.

Otherwise exempt employees whose compensation is reduced significantly may lose their exemption from overtime, due to a failure to meet minimum salary requirements. This means they will need to be compensated time-and-a-half for any overtime worked.

If you do reduce salaries, be sure to properly notify impacted employees in advance of working time at their new rate of pay. Certain states, such as New York, have required forms that must be administered to employees in advance of a wage reduction.

Work Reductions and Layoffs

If you find yourself facing the unenviable scenario of having to cut staff, you have some big choices ahead of you. It’s never fun, and it’s never easy. And as always, we recommend reaching out to legal counsel to find the best options for you and your business. That said, here are some routes to consider.

Reduce Hours

Before reducing headcount, consider reducing hours across a greater span of roles. This might be easier said than done, but if your entire business has a slowdown rather than individual functions, costs might be effectively reduced through a rollback of all employees’ overall compensation. This is most helpful if you have hourly workers, as exempt, salaried employees generally must receive their full salary in any week in which they perform work (subject to certain limited exceptions). Note that state law may require advance notice of a reduction in hours.

Job Sharing

Job sharing is when two part-time employees do the same job as would be typical of one full-time employee. The benefits of job sharing are numerous. Consider the impact job sharing might have on company morale, staff cohesion, and business continuity. Even though you might feel like you have too many employees right now, that may change quickly through attrition. Don’t overcorrect and inadvertently bring recruiting duties back onto your plate!

Keeping as many distinct individuals employed as possible will keep your company’s brain trust intact, and the skills of your people sharp. Some economists have argued that the economy might recover as quickly as it receded, and if that happens, you want to be poised and ready to snap back into action.

“Furlough” or Unpaid Leave

If cash flow is tight, a common reaction is to want to put employees on unpaid leave or some kind of “furlough” option. The logic is that you can give your employee some sense of job security, while maintaining access to any health insurance benefits they access through work.

Unpaid isn’t an ideal situation for employees, first and foremost because they aren’t receiving wages or salary continuation from their employer. Although being laid off doesn’t sound great, terminated workers can collect unemployment benefits. Employees might also be eligible to collect state unemployment benefits while temporarily furloughed, but this can make claims more complicated, and benefits vary by state.

On the employer side, putting an employee on unpaid leave can often raise some sticky compliance issues. For example, employers should be mindful of undermining the weekly salary of exempt employees, who generally need to continue to receive their full salary for each workweek in which they perform any work.

Also, there is likely a limited period during which an employee can remain enrolled in your group health coverage while on unpaid leave. In some cases, you may have to obtain written consent before recouping any employer-fronted employee contributions for health insurance premiums corresponding to their coverage during unpaid leave. Additionally, you may not be able to recoup these amounts at all should the employee never return to work.

Keep in mind that there are some laws that guarantee job-protected leave to certain individuals under normal circumstances. As we all continue to deal with the effects of the pandemic, employees of covered employers remain eligible for FMLA leave. State and local level protections for leaves of absences also remain in effect, and may preclude you from making certain employment decisions that implicate covered employees. Employees may be entitled to compensation under state/local laws or benefit programs such as short-term disability. Keep in mind that the COVID-19 regulatory landscape is changing on a daily basis. Check with legal counsel before taking significant actions with respect to your workforce to evaluate any compliance implications.

Termination

It may be the last thing you want to do, but in some cases, termination may be the best option for both the employee and the employer. While this sounds harsh, and even painful, recently unemployed persons are able to access state unemployment insurance benefits.

Additionally, employees who have lost their employer-sponsored medical coverage due to termination or a reduction in hours will qualify for continuation coverage through COBRA, or might opt for a Special Enrollment Period in coverage through the Health Insurance Marketplace.

Be sure to keep all usual considerations in mind with respect to employee terminations, such as final paycheck timing requirements, payout of accrued and unused vacation, and any obligations for notice requirements pertaining to group layoffs for medium and large employers under the WARN Act. We understand that these decisions are incredibly difficult, and that compassion is key.

For more information on these issues, take a look at the helpful resources below:

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.