Many companies, now that the PPP funds have been distributed, are making the big decision this week on whether to layoff employees or not. I wanted to bring another option to the table to protect your team when they can not work.

Obviously, the "best" option for the employee is paid leave, but that’s unaffordable for some small businesses (see our info on the FFCRA to see if that could help though!). Furloughs, on the other hand, allow employers to cut labor costs without severing that relationship fully.

What is a furlough?

A furlough is a suspension from work without pay for a finite period of time. It can be mandatory or voluntary.

While public and private institutions can both furlough employees, you’re probably most familiar with them at the federal level. Workers are often furloughed as a cost-saving measure during a government shutdown. It also happens sometimes when labor organizations can't come to an agreement or budget with the employer. Organizations do this when they don’t want to lay off staff but temporarily can’t afford to pay them.

For private businesses, furloughs are often cyclical or seasonal, responding to dips in business. It can allow the business owner to pause the workers’ pay without terminating them.

What’s the difference between furlough vs. layoff?

The terms “layoff” and “furlough” are both used to describe situations that involve a lot of workers, and usually they apply to job losses where finances—not performance—are the triggering factor. (A single poor performer who is let go, on the other hand, is generally “terminated” or “fired” instead.)

While laid-off workers are sometimes rehired, the term usually refers to an indefinite—often permanent—break in the employment relationship.

A furlough, on the other hand, is typically for a shorter, fixed period of time. Workers are told to stop coming in to work or that their hours will be cut back. While laid-off employees are officially separated from employment, furloughed workers remain on your books as current employees.

Pay and benefits

Laid-off workers are essentially fired, triggering final pay requirements. Furloughed workers, on the other hand, are still employed and generally do not receive an official final paycheck or vacation payout. (Although you should carefully review the laws of your state because in some states a furlough can trigger final pay requirements.) But you can basically think of a furlough as a certain number of mandatory unpaid days off.

But—and this is an important point—depending on how long a furlough goes on and how many hours are cut, a furlough may be a triggering event for COBRA purposes if the employee is dropped from a group health plan due to a loss of work hours. When and whether this happens is governed by the terms of your particular health plan and the requirements in your state.

MOST plans have waived "work hour" requirements. It will vary depending on your insurance, but you can normally keep them on your companies group policy!

That's a big difference.

Be aware, if you terminate all your employees, they may not get COBRA or other continuation coverage because the policy will usually get terminated by the carrier. Regardless, be sure to contact your insurance carrier before deciding how to proceed. Terminations then, mean no pay, and no insurance. MASS terminations could also mean no COBRA.

Similarly, an employer can get into trouble under the Affordable Care Act (ACA) if a furloughed employee is prematurely dropped from group coverage. That's a whole can of worms beyond the scope of this episode.

Before implementing either a layoff or a furlough, make sure you understand the implications from a benefits perspective—consult your broker if you have any questions.

Exempt workers

Employers generally cannot dock the pay of exempt employees without jeopardizing their exempt status. If an exempt employee performs work in any week, they...