By Priscilla Kohl, HRTools Business Writer
“I’ve developed a new philosophy. I only dread one day at a time.”
--- Charlie Brown
The Employer’s Dreaded Task
Some economic experts say that the United States is facing the worst financial crisis since the Great Depression. News reports circulate that even the professional sports and horse-breeding industries are being threatened by the financial crisis.
More significantly, since small- to medium-sized businesses primarily fuel the U.S. economy, the stakes are high for all Americans. This growing economic threat has set in motion a domino effect on American businesses prompting many employers to make tough decisions about their people.
On Dec. 16, 2008, the Society for Human Resource Management (SHRM) released poll results; 48 percent of surveyed organizations reported laying off employees in 2008. Moreover, 60 percent of organizations surveyed say they plan to lay off employees in 2009.
In making these serious decisions, employers are faced with understanding numerous HR-related terms and legal compliance issues. Some concerns relate to federal and state-mandated legislation, which can be overwhelming and confusing.
The following workforce-reduction-related questions, including information, terms and resources, are provided to help employers navigate through this maze:
1. What is the WARN Act? The Worker Adjustment and Retraining Notification Act (WARN) is a federal law enacted on Aug. 4, 1988 and became effective on Feb. 4, 1989. This act requires that some employers must give 60 days advance notice, to employees or their representatives (labor unions), of covered factory closings or covered mass layoffs. The U.S. Department of Labor has posted an online fact sheet detailing information about WARN that includes definitions, requirements, exemptions, etc.
2. What are the differences between layoffs, furloughs and a reduction in force? While these three workforce actions are normally taken in order to achieve savings by reducing payroll costs, the terms are often used interchangeably; the differences are briefly explained below:
- Layoffs—a temporary separation from payroll. Employees are laid off when there is not enough work for them to do. Generally, laid-off employees are eligible to collect unemployment benefits.
- Furloughs—a layoff alternative. When employers require that employees go on furlough, employees may work fewer hours during the week or they may take unpaid time off. For instance, employees may be asked to take two weeks of unpaid leave during the year. This approach is used as a way to spread the hardship among all employees as opposed to having a few employees suffer permanent employment separation.
- Reduction in force (RIF) —an elimination of positions. This term refers to permanently reducing employee headcount, which also can be achieved through voluntary retirements or reassignments. As another example: Employers can choose to not renew contracts with temporary or contract workers.
3. What is a severance package? In most circumstances, employers are not required to pay severance to terminated employees. There are a few exceptions, including contractually guaranteed severance payments set out in an employment agreement, and employers should consult with an employment attorney to make sure they are in compliance with federal and state laws. Some employers provide severance packages anyway in order to help soften the blow and to help employees bridge the gap. A severance package can include one or more of the following benefits:
- Severance Pay – amounts typically vary from a total of one-to-two weeks’ salary to one week of pay for every year of employment.
- A lump sum payment - to cover a certain number of weeks or months of COBRA premium payments for continued health insurance (or reimbursement to the employee for premium payments through a certain date). See note below.
- Outplacement services – that provide terminated employees with various professional counseling opportunities, such as resume writing, job interviewing, etc., for alternative career pursuits.
- Office space – some employers provide office space to their former employees, for job-searching purposes, so that they can get back on their feet more quickly.
- References – employers may agree to help terminated employees find a job by providing a letter of reference.
- Other benefits – some employers allow terminated employees to keep certain pieces of equipment such as cell phones or computers, or they may release them from contractual agreements such as promises not to compete.
Note: A federal law called the Consolidated Omnibus Budget Reconciliation Act (COBRA) requires some employers who offer group health insurance to offer terminated employees the opportunity to continue their coverage; however, it does not require employers to foot the bill.
4. When does an employer have to give terminated employees their final paychecks? Most states require employers to give terminated employees their final paychecks within a short time period. Some states require that employers give departing employees their final paychecks on their last day of work, and this sometimes depends on the reason for termination and/or the prior notice given to the employee for the same. Again, to avoid making a costly noncompliance mistake, employers should check with an employment attorney.
5. What business or cost-reduction measures could be considered as alternatives to conducting employee layoffs or a planned reduction in force? If at all possible, many employers want to avoid losing or disrupting a productive workforce. As alternatives, some businesses are considering the following cost-saving measures to tide them over until the economy recovers:
- Hiring freezes
- A freeze on promotions, pay increases, etc.
- Reducing costs or expenses (encourage employees to be innovative)
- Pay cuts (that comply with federal and state wage and hour regulations)
- Reducing authorized overtime hours and related costs
- Reducing or shortening the work week
- Offering sabbatical leaves
- Retraining employees to work in other areas of the organization
- Shutting down the business for a short period of time
- Offering early retirement
Meanwhile, remember your “surviving” employees, too, in these rocky times. They will be looking to business leaders to help steady the boat. Most employees will be more productive, loyal, understanding and cooperative if employers provide consistent communication and offer moral support. Let your employees know, too, that you expect them to be part of the solution.
Legal Disclaimer
The information contained in this document is for general, informational purposes only and is not intended to be legal advice. This information is not a substitute for the guidance of a professional and should not be relied upon in reference to any specific situation without first seeking the advice of a qualified HR professional and/or legal counsel regarding applicable federal, state or local laws. HRTools, Insperity and their respective employees make no warranties, express or implied, and make no judgments regarding the accuracy of this content and/or its applicability to a specific situation. A reference or link to another website is not an endorsement of that site or service.