As the coronavirus pandemic continues in many parts of the U.S., furloughs have become more common. The COVID-19 outbreak has forced many employers to make the difficult decision to institute furloughs or other temporary leaves of absence. Unlike a laid-off worker who is no longer an employee and loses his or her benefits, a furloughed employee still retains certain employment rights. However, a furlough can put undue strain on employees in a number of ways. It is important to understand exactly what being furloughed means and how it can affect employment and the benefits that go along with being employed. Employees should also discuss their employment status with their employer, as well as an experienced benefits consultant.
Loss of Income Due to COVID-19
COVID-19 has had a significant impact on the world’s economy. According to the International Labour Organization, the partial and full lockdown measures have affected more than 2.7 billion people. While unemployment is available for these workers, it can take several weeks to start receiving payments, especially with the backlog caused by the sudden closure of businesses around the U.S. As more businesses are forced to close their doors and put their employees on furlough, workers remain concerned about what a temporary leave of absence could mean for their livelihood. In addition to a loss of income, some employees have also experienced changes to their employment benefits.
What Is a Furlough?
A furlough is an employer-mandated unpaid leave from work that is meant to be temporary. A furlough may be used by an employer as a last resort cost-saving measure. Employees in both private and public sectors can be put on furlough, regardless of how long the person has been employed with a particular business. The specific terms of a furlough can vary from company to company. Some furloughs last just a few weeks while others can stretch out for months. During a furlough, an employee may retain some benefits, such as health insurance; however, this is not always a guarantee. Furloughs are often confused with the term ‘laid off” but the biggest difference between the two is that when you are furloughed, you technically get to retain your job. When you are laid off, you are no longer employed at your job.
Temporary Pause of Work
According to a recent poll from the U.S. Commerce and MetLife, more than 53 percent of small businesses with fewer than 500 employees temporarily closed since the start of the pandemic. When a business closes, an employer may choose to execute a permanent layoff or temporary layoff. A permanent layoff is a final separation from employment, while a temporary layoff occurs when an employer plans to rehire a laid off employee. A furlough is considered a type of temporary layoff.
Furloughs for hourly employees are typically experienced in one of two ways. First, the employee may have a reduction in hours which could affect the worker’s benefits. Second, the employee may experience a zero hour schedule which happens when a company closes for the “foreseeable future.”
Side Effects of Furlough for Employees
While no one wants to be put on furlough, employees in this position can avoid layoffs and employers can reduce their rehiring needs. Certain types of furloughs, such as those that are planned due to seasonal changes in business, can allow employees to budget and plan accordingly. However, there are some negative side effects that employees experience as a result of a furlough such as the loss of income. Depending on the length of the leave, an employee may also lose their health coverage and other benefits.
Pause on Work & Income
When an employee is furloughed, they no longer receive an income from their employer. However, workers that are furloughed are generally eligible for unemployment benefits until they can return to work. Only certain employees can be furloughed; salaried workers, also known as “exempt” employees, are paid on a fixed annual income instead of hourly and can be furloughed. A salaried employee on furlough cannot work for their current employer at all during their furlough. This includes all duties, including small tasks like attending a virtual meeting or checking emails; however a furloughed employee can seek a temporary job.
Continued Access to Employee Benefits
The implementation of an employee furlough does not necessarily mean that employee benefits like health insurance will terminate. Furloughed is not a legally-recognized employee category and does not fall under the Consolidated Omnibus Budget Reconciliation Act (COBRA). This means that the employee is still employed and therefore has continued access to group coverage. Many companies that furlough their employees will continue to provide them with coverage. However, some plan documents disqualify employees with reduced hours from maintaining coverage. Employers that have 50 or more employees are required to offer coverage to 95 percent of their full-time or full-time equivalent staff under the Affordable Care Act (ACA).
Contact Business Benefits Group
Governments across the globe have stepped in to support employees and businesses with the financial challenges caused by the pandemic. In the U.S., the Senate passed a $2 trillion coronavirus rescue package which has partially been used to pay the wages of some workers who remain on companies’ payrolls, as well as those who have permanently lost their jobs due to the lockdown. For businesses that have furloughed employees, it is important to be aware of the impact that this temporary leave can have on employee benefits. Reach out to the business benefits experts at the Business Benefits Group to learn more about the best way to handle the employee benefits of furloughed workers.