March 18th, 2020

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COVID-19 & Your Team: What Is The Difference Between a Furlough, a Layoff & a Reduction In Force?

For the majority of us, the terms furlough, layoff, and reduction in force (RIF) all sounded like words we would never really need to concern ourselves with. Unfortunately, with the novel Coronavirus infiltrating all our communities, these terms have rapidly become a thought in many of our minds. So what exactly does furlough, layoff, and RIF mean for in regards to your hospital’s team?

All three of these terms describe actions that are intended to achieve cost savings by reducing a company’s payroll costs. Even though the words have been used interchangeably, their true meanings are quite different.


Furlough

A furlough is considered an alternative to a layoff. When an employer furloughs its employees, it requires them to work fewer hours or to take a certain amount of unpaid time off. For example, an employer may furlough its nonexempt employees one day a week for the remainder of the year and pay them for only 32 hours instead of their normal 40 hours each week.

Another method of furlough is to require all employees to take a week or two of unpaid leave sometime during the year. Employers must be careful when furloughing exempt employees so that they continue to pay them on a salary basis and do not jeopardize their exempt status under the Fair Labor Standards Act (FLSA). A furlough that encompasses a full workweek is one way to accomplish this since the FLSA states that exempt employees do not have to be paid for any week in which they perform no work.  

An employer may require all employees to go on furlough, or it may exclude some employees who provide essential services. Generally, the theory is to have the majority of employees share some hardship as opposed to a few employees losing their jobs completely.

Employees that have been furloughed should qualify for unemployment. Check with your local unemployment websites to see if the employees would qualify for an Unemployment Insurance Workshare Program for a partial reduction in hours or for a temporary loss in all work employees should be able to receive unemployment. During the COVID-19 crisis, most states have waived the waiting period for receiving unemployment.

It is also important to note that during a furlough the employer must maintain the employee’s benefits. The employer would need to determine if they are going to pay 100% of the benefit premiums, create a repayment plan for the employee’s portion of the insurance premium when the employee returns to work, or if the employee will be responsible for paying their portion of the insurance premium to the employer or directly to the insurance carrier while on furlough.


Layoff

A layoff is a temporary separation from payroll. An employee is laid off because there is not enough work for him or her to perform. The employer, however, believes that this condition will change and intends to recall the person when work again becomes available. Employees are typically able to collect unemployment benefits while on an unpaid layoff, and frequently an employer will allow employees to maintain benefits coverage for a defined period of time as an incentive to remain available for recall.

When an employer lays off an employee, they must follow all state and federal guidelines regarding termination and final pay guidelines. This means employers may have to pay out accrued PTO, Vacation, and/or Sick Time.


Reduction in Force (RIF)

A RIF occurs when a position is eliminated without the intention of replacing it and involves a permanent cut in headcount.  A layoff may turn into a RIF or the employer may choose to immediately reduce their workforce. A RIF can be accomplished by terminating employees or by means of attrition.

When an employee is terminated pursuant to a reduction in force, it is sometimes referred to as being “riffed.” However, some employers use layoff as a synonym for what is actually a permanent separation. This may be confusing to the affected employee because it implies that recall is a possibility which may prevent the employee from actively seeking a new job.

When an employer “riffs” an employee, they must follow all state and federal guidelines in regards to termination and final pay guidelines. This means employers may have to pay out accrued PTO, Vacation, and/or Sick Time.

We know that these three options weigh heavily in your minds as practice owners. You should be prepared for the worst-case scenario of having to use one of these steps, but we strongly recommend that you try to exhaust all other alternatives to any form of layoff prior to getting to this step.