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Businesses: Think about Tomorrow When Hunkering Down Today

CPAs & Business Consultants


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Until recently, the number one concern for many employers was finding and retaining top talent. Today, to fight the novel coronavirus (COVID-19), many of those same companies are being forced to shed workers en masse. If you haven’t yet pared down your workforce or need to do some more trimming, what are your options? How you carry out a workforce reduction — and how you maintain contact after the cutbacks — can either engender loyalty and keep employees wanting to come back, or it can send them away feeling disgruntled.  

As employers trim their employee rosters, they have several options, including:  

  • Reduce employee benefits — for example, 401(k) matching contributions,
  • Furlough workers,
  • Lay off some or all of staff, or
  • Cut nonexempt employees’ hours.

(Note: Reducing the hours of salaried exempt employees doesn’t allow you to cut their pay proportionately under the Fair Labor Standards Act.)

The less drastic the measures, the easier it will be to keep valued workers available to rejoin the company when you need them. In part, it depends on how much time has elapsed since they were let go. Don’t underestimate the importance of the way you say goodbye. It will have an impact not only on your ability to bring those employees back on board, but could affect your “brand” as an employer. Former employees who feel mistreated are only too happy to write about it on social media.

Cutting Hours

Cutting nonexempt workers’ hours lets you hang on to more employees, of course. While nobody wants to see their hours cut, they dislike being laid off even more, especially when unemployment rates are spiking. Not only do they retain some income, but they’re less likely to feel singled out for punishment, since more of their coworkers are in the same boat.

Note: Federal assistance (under the CARES Act) to employees harmed economically by the COVID-19 outbreak isn’t limited to employees who lost their jobs entirely. The law’s “Pandemic Unemployment Assistance” program can provide funds to workers who aren’t eligible for regular unemployment compensation because they still have some employment income.

A special provision of the CARES Act focuses on supporting employees whose hours were reduced in a work-sharing arrangement. The benefits vary according to whether states — which administer unemployment programs — already provide some support for employees forced to take reduced hours. Twenty-seven states have such programs.

Employees permitted to work with reduced hours are generally able to hang on to some of their employee benefits, which often represent a significant part of their total compensation. The picture gets more complicated, however, when employees are furloughed.

Employee Benefit Implications

With a furlough arrangement, the employee’s job is essentially put on hold. But in some respects, the employee is still under your economic umbrella. Plus, there’s an expectation that he or she will eventually return to full-time employment.

The legal impact of a furlough, as it pertains to employee benefits, can vary according to its duration. For example, a health insurance company might not agree to maintain coverage for furloughed employees just because you continue to pay your customary share of the cost of their health benefits.

Your contract with your carrier might become void if you’re covering people who aren’t working for you now and might not be employed by you in the foreseeable future. It’s critical to read the fine print on insurance contracts before making any promises to furloughed employees.

There’s generally more leniency with 401(k) plans. While you can’t deduct any payroll-based employee payments to a 401(k) plan if an employee isn’t receiving a paycheck, employees can deal directly with the 401(k) provider for some transactions. For example, if the furloughed employees want to take advantage of the CARES Act’s liberalization of plan loan rules, they can do so but need to make payments on a loan by means other than payroll deductions.

When Termination Is Your Only Option

Using a furlough strategy can improve your chances of keeping valuable employees available to return to full-time status when you’re able to reopen your doors. But sometimes, a simpler straight layoff (which is similar to a termination) is your only option, depending on your industry and the economy. Even then, you can still do your best to avoid losing those valued employees forever.

One key to maximizing the chances of being able to rehire laid off employees later is to be as generous and sensitive as you can when you pull the trigger. That can include helping terminated employees, either directly or through an outplacement service, to take advantage of available state and federal unemployment benefits.

If you can afford to pay a severance benefit, that can instill loyalty as well. However, be aware that such a policy needs to be administered consistently. Also, if you structure a severance payment plan as a series of periodic payments instead of as a lump sum, that could delay a laid-off employee’s eligibility for unemployment benefits. Why? Your state might treat it as the equivalent of ongoing employment income.

Keep Talking

If you want to hold onto your workforce, don’t neglect contacting your staff in general, especially those you’re most interested in hiring back when the time comes. It’s best to avoid making an actual commitment to rehire them, but you can still keep communication friendly. The longer workers go without hearing news directly from you, the more likely they are to assume the worst and start looking elsewhere.

Communication doesn’t have to be formal, but it should be regular. If there’s news you can share, your laid-off workers are probably eager to hear it. Whatever you do — group emails, texts, letters, Facebook posting on your company’s page or occasional phone calls to your most valued workers — don’t neglect staying in touch so that, when times get better and you prepare to turn the “closed” sign to “open” your loyal staff is right there beside you.

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