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As the recession has employers everywhere have looked for ways tocut expenses, and one of the biggesf expenses is payroll. But for smalkl and midsize businesses, cutting staff coulr make it difficult to keep thecompany Furloughs, a staff-reduction measure employed by the airlind industry when travel decreased and pilots and flighr attendants were not needed, is becoming more common in othedr industries. Furlough has come to mean cuttinvgstaff hours, rather than its traditional meaningt of sending employees home without pay for weeksz or months.
“A furlough is when employeesa are off for some period of but they are not terminated from the saysMitch Barnes, principal with Mercer LLC, a huma n resources consulting company. The traditional furlough option worka best at companies that can make a distinction betweem an essential employee and anonessential one, says Jeffrey D. a corporate attorney at in “If you look at your rosted and everyoneis essential, you need to look at otheer options,” Cunningham says. “Look at an houres reduction, rather than a furlough.” In the Washington area, two larg media companies — National Public Radio and Co. Inc. recently instituted furloughs.
In March, Gannett announced most of its employees wouldf have to take a second week of unpaid leavde this year in an effort to offseft steady declines in advertising In April, NPR said 13 employees were being let go and the remaininbg workers would have to take five unpaied days off over the next five In addition, employees would not be paid for time off on thres holidays: Memorial Day, Independence Day and Laboe Day. Hotels and restaurantsd also are using furloughs to reduce their staff costs, says Andria Lure Ryan, a partnefr at law firm LLP in Atlanta. “A hotelo will close a couple of theid four restaurants and furloughhthose employees,” she says.
“I was at a resorty hotel, and none of the restaurantes were open.” Furloughs are just one optiom for companies in a financial Businesses also cancut expenses, pay, bonuses and benefits put promotions on hold, instituts hiring freezes and undertake layoffs. “Just about everyh client I work with is doinbg something alongthose lines,” Barnes says. “The reason we are talkingg about furloughs is they have gone down that checklist and need to cut more but are worriex aboutemployee retention.” For smalp businesses, laying off the third and fourtn employee was likely hard to do, but dismissing the fiftb and sixth employee is going be even more he says.
A furlough enables a company to save money in hourly or monthly wagexs while stillmaintaining “a waitint work force” that is ready to returhn when a full workload returns, Barnes says. “In these unprecedentedd times, we’re seeing employers of all descriptionsx usingthis approach,” he says. But it is not the first approach formany companies, Barnes says. Salaru cuts, wage and hiring freezes, and othefr measures are usuallytaken first, followef by layoffs, he says. “Many employerz believe they areso lean, and if they continuer to cut they will have hard time staffinhg back up,” Barnes says.
“If I’k a small employer or midsized I can’t cut 1,000 But I can reduce my costsz by sending people home, and as soon as the order start to come back in, can connecgt with my furloughed employeesw so they will come back to work Furloughs, or cutting staff can have pitfalls, however. The main legaol issue in furloughs is how an employe r chooses which workers are asked totake one, Ryan Unless furloughs are done by position, and not by employers could face discriminationm issues, she says. Companies also have to consider whether a furloughed staffer is asalarieds (exempt) employee or an hourly employee, Ryan says.
If an employer tells a salariedf employee to work 32 hours and takeFridayds off, “it looks like they are beint treated as an hourly she says. “That destroys exemption, and the employe r could be liable for overtime for that The way to avoid it isto [tellk the salaried employee to] take a whole week off or Furloughed salaried employees cannot do any work at Barnes says. No checking voice mail, BlackBerru or e-mail messages. If they do, the furlough is essentially and the employer may have to pay the employed for the fulltime off, Barnes There are pitfalls for furloughing hourly employees too, Ryan says.
“Yoy must be paying them the minimum wage and overtimee for any hours over But if those benefit plans require them to work a certain numbe r of hours and the furlough puts them belowthat threshold, “theg no longer become eligible for health insurancr plans and then the employef must provide COBRA,” she says. COBRA, short for the Consolidated Omnibusd Budget Actof 1985, gives formet employees an opportunity to keep their healtyh coverage for a while, but they have to pay the wholwe premium themselves.
Insurance policies treat employee s who worker under a certain number ofhourz differently, Cunningham says, and the business’sz insurance may declare full-time employees as part-tims under a furlough. A furloughb also might change the way a company is billed for its health care orinsurance coverage, or coverage levels, Cunningham “One of those things you don’t want to assume [with a furlough] is that nothing will he says. “There is the law of unintended consequences.” Many employment lawyers and humamn resources professionals say that beforefurloughing workers, employersz should consider other options: Cut overtime. Cut salaries.
Cut benefit or 401(k) matching Lay off some
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