Benefits and Compensation, Coronavirus (COVID-19)

How to Approach Employee Compensation During a Furlough

In times of economic uncertainty and crisis such as this, employers often take the extreme cost-savings measure of reducing their workforce through layoffs or furlough.

furlough

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Layoffs are a severe step that triggers several administrative burdens associated with terminating and rehiring employees, such as providing required notices under state and federal law, ensuring legal requirements for employee terminations are satisfied, and incurring additional costs and delays related to rehiring.

While furloughing employees is still a drastic course of action, many companies are utilizing this alternative to layoffs because it allows them to lower expenses while still ensuring a quicker “reboot” at the conclusion of the crisis and providing employees with certain benefits while their hours and wages are temporarily reduced.

If a company decides to furlough one or more employees, it is important to maintain an open dialogue with them on a return to work to ensure the decreased work and pay are, in fact, temporary. Employers should also take steps to exhibit that it is a true furlough and not an attempt to circumvent the legal obligations associated with a layoff.

In other words, they must display hallmarks of continued employment, which may include reimbursing for mixed-use assets, as well as be prepared to compensate employees for any work they do perform while furloughed.

Displaying Hallmarks of Continued Employment

Hallmarks of continued employment are mutually beneficial and serve as an avenue for companies to prove they intend to have their furloughed employees return to work at a future date. These can include continuing to provide benefits such as health insurance to the furloughed workers and continuing to allow employees’ equity to vest.

Maintaining all possible hallmarks throughout the duration of the furlough is a good idea because eliminating wages also precludes certain other employer-offered benefits during a team member’s employment pause.

For example, employees generally are no longer eligible for a 401(k) plan because the contributions, whether matched or the sole responsibility of the employees, are drawn from payroll. While the uninterrupted benefits are advantageous to an employee on a reduced income, it also shows a business intends to continue employment if this were ever challenged.

What About Reimbursing for Mixed-Use Assets?

In today’s world, we’re more remote than ever. This is not just a result of the current environment created by the pandemic; the remote workforce has expanded significantly over the past several years, with more than 92 million mobile-enabled workers now in the United States alone. Employers have adapted to this paradigm shift by providing those employees with basics such as a computer and reimbursing them for the recurring costs associated with data and service these devices require.

Additionally, companies with mobile workers who use their personal vehicles for work (think pizza delivery drivers, pharmaceutical sales reps, etc.) reimburse them for a percentage of the costs of insurance premiums, license and registration fees, taxes, and depreciation—things that don’t go away just because they’re not driving.

Any employers that typically reimburse for these mixed-use assets should consider continuing to do so because, in addition to providing another hallmark of continued employment, it will allow employees to retain the assets with the understanding they will be returning to work.

Compensating for Work Performed

Employees on furlough must truly be on furlough, meaning they should be instructed not to perform any work-related tasks, including answering an e-mail or responding to a phone call. If they do, employers should be prepared to properly compensate employees in accordance with the Fair Labor Standards Act (FLSA) and other state labor laws to maintain compliance on a federal and state level.

Failure to compensate furloughed employees who perform work-related tasks means employers can be held legally responsible for the unpaid wages and be subject to significant fines.

For those turning to furloughs as an option to offset the economic condition, ensuring that employees are compensated fairly and accurately is essential as we all navigate our current reality, and it will remain important as we start to recover and return to our normal working conditions.

By providing all possible hallmarks of continuation, including benefits, and reimbursing employees for mixed-use assets that are typically used for business, employers can support their legal compliance while doing right by their employees.

Danielle LackeyDanielle Lackey is the Chief Legal Officer at Motus, a solutions provider for businesses with mobile-enabled workforces. Lackey’s expertise includes representing major corporations in complex civil and criminal matters. She is responsible for all Motus legal affairs and compliance functions and drives initiatives that bolster Internal Revenue Service and legal compliance for Motus customers. To learn more about mobile work, click here to access Motus’ latest report.