Even though the words are used interchangeably, their true meanings are quite different. Be prepared to answer employee questions, or amend your plans, before making an announcement about unpaid time off.
Layoff
Layoffs are straightforward, a temporary separation from payroll because there is not enough work for him or her to perform. There is a COBRA triggering event for the health benefits (medical, dental, vision, health FSA, etc.) upon termination for those covered under one of the component benefit plans. Employers can choose but are not required to subsidize COBRA for terminated employees.
Some employers are taking this action when they anticipate or desire to rehire the terminated employees when business returns to normal. Another consideration for rehired employees is whether they will be required to complete a new waiting period if they are rehired beyond 13 weeks. Employers could choose to waive the waiting period for rehired employees but will need to amend their plan to do so and will want to get carrier approval for fully-insured plans or stop-loss approval for self-insured plans.
Furlough
Furlough requires employees to work fewer hours or take a certain amount of unpaid time off. For non-exempt employees an employer can reduce hours worked, i.e. working 32 hours instead of normal 40, or one less day per week, or a full week of unpaid leave. For exempt employees a furlough without pay must encompasses a full workweek. Under FLSA rules if an exempt employee works any time during the workweek the employer must pay the full week’s wage.
An employer may require all employees to go on furlough, or it may exclude some employees who provide essential services. The main purpose is to have the majority of employees share some hardship as opposed to a few employees losing their jobs completely. An employer may allow employees to maintain benefit coverage for a defined period of time
FT or PT Status
Most health plans only cover full time employees working a certain minimum hours per week. Your hours reduction may unintentionally drop an employee’s insurance coverage.
Please be advised that any and all information, comments, analysis, and/or recommendations set forth above relative to the possible impact of COVID-19 on potential insurance coverage or other policy implications are intended solely for informational purposes and should not be relied upon as legal advice.
Get Started with a Free consultation
Creating a custom insurance or benefits package is critical for companies of all sizes.