Breaking News

Furloughs are better for morale, layoffs cut costs faster. Here's how to decide which option is better for your business.

coworker conversation
  • Having to let go of employees is tough, but if you can't afford to pay your workers, you might need to consider layoffs or furloughs.
  • Regardless of which route you choose, put your employees first — especially amid a crisis like this one — and think about salary cuts or other alternative measures before making the decision. 
  • These experts recommended pursuing furloughs first; most are unpaid but guarantee a job for employees to return to. 
  • Layoffs are permanent and require a lot of paperwork, as well as decrease the likelihood that you could ever rehire those employees back.
  • Click here for more BI Prime stories.
With business slowing to a trickle or even a standstill amidst the coronavirus pandemic, many entrepreneurs are faced with the stark reality that they can't afford to continue paying their workers — and must consider whether it's worth furloughing them for the time being or laying them off completely.
Business Insider spoke with experts on the issue to help small business owners navigate this rough terrain and decide what's best for their team and company.

Put employees first

No matter what the decision, business owners should try to "make as soft a landing as possible" for their employees, according to Dave Mawhinney, executive director of the Swartz Center for Entrepreneurship at Carnegie Mellon University.
"The corporate stance is: shareholders first," said Mawhinney. "I typically agree with that position, but in times of crisis we have to put our employees first. The core of what helps you create the value of what you deliver to your customers is your team."
Of course, every employer will need to make a different set of calculations. "A lot of it depends upon your optimism of when things will return to equilibrium or normalcy," said Mawhinney. "You're reading macroeconomic forecasts, microeconomic conditions in your region."
Mawhinney suggested that small business owners first take stock of their companies to see if there's a way to keep everyone employed, even if that means salary cuts. "The leadership team needs to step up and say, 'We're not going to take any money now,'" he said.
If employers choose to cut wages, they need to make sure that they're complying with federal and state laws, such as minimum wage and overtime pay requirements. Businesses in California, for example, still need to pay a minimum wage of $12 per hour if they have 25 employees or fewer, or $13 per hour if they have 26 employees or more, even though the federal minimum wage is $7.25 per hour. Some states also require that businesses provide advanced notice to employees if they plan to change their wages.
Business owners also need to make sure they're not violating any anti-discrimination laws when they cut pay.
"I've heard stories of pregnant people being targeted for layoffs and reductions in pay," said Rebecca Pontikes, a Boston-based employment lawyer. "Because the assumption is their work product will go down. Or people with kids. Before you do these sorts of things, do an objective analysis on productivity." Or cut employee pay evenly across the board.
All of the experts who spoke with Business Insider advised against switching employees from full-time to contractor status, which can carry enormous legal risks. "If you think of all the disputes happening right now in the gig economy, that's just not the right signal to send," said Mawhinney.

Furloughs are a short-term leave of absence that allow you to keep on valuable staff

If it simply isn't financially feasible to keep everyone on staff, employers should consider a furlough. If you've applied for a Paycheck Protection Program loan but you're waiting for funds to come in, a furlough can be a great way to buy time before making a more permanent decision.
A furlough isn't a formal legal term. Rather, it's a word that's used to describe a temporary pause in work where there's an expectation that the employee will pick back up again in the not-too-distant future. Most furloughs are unpaid, but employers often choose to keep providing benefits like health and dental insurance. Furloughed employees can also be eligible for unemployment.
"A furlough is intended to be short term," said Michael Cole, lead employment counsel at payroll software company Gusto. "It's where you put your employees on an unpaid leave of absence, but you anticipate that at some point you'll be able to bounce back."
He added, "From a morale perspective, you're still keeping [workers] employed. They have a job they can go back to."

Layoffs are permanent and require a lot of paperwork

"If you're pessimistic about the future and the ramp back up to normal, layoffs are an option," said Mawhinney, adding, "I think it's the last option employers want to do." (And just because you lay your employees off doesn't mean you can't support them in other ways, Mawhinney noted. Companies can offer to pay employee COBRAs through the end of the year, for example.)
But layoffs are permanent, and they come with a lot more paperwork. "Because [employees] are being separated from payroll, there are requirements that need to be met, like termination notices, COBRA notices," Amber Clayton, knowledge center director at the Society for Human Resource Management. Clayton said a large portion of SHRM members have been choosing furloughs over layoffs when they are able to.
Layoffs might also send employees looking for other work, decreasing the likelihood that you can rehire them when the economy recovers. Employees aren't fungible — the people you've hired for your business have skills, knowledge, and expertise that help keep things running.
"When you reopen again, if you start from scratch with zero employees, you may not get the old ones back," said Pontikes. "There may be a lot of historical knowledge about the organization that you don't want to lose. Before you push the layoff button, take a step back. What do you really want for your business?"
As a solo practitioner, Pontikes is also a small business owner. Even though she may end up with less work this year, Pontikes isn't planning to cut her staff.
"Because if I did that, and [the economy] reopens again, I would be in a terrible position," she explained. "I'm going to take a hit monetarily this year and I know that. But everybody else is, too. All of us have to sit down and look at our expectations and remind ourselves that we can dial back, and that we're all in this together."
SEE ALSO: Disaster recovery experts and IT specialists offer 8 steps companies should take before reopening the office to protect their team's health and business' safety
NOW READ: An email security firm found 645 potentially fraudulent PPP-related domains registered since the CARES Act was signed into law. Here's how you can protect your business from the theft of critical data.
Join the conversation about this story »
NOW WATCH: Here's what it's like to travel during the coronavirus outbreak


* This article was originally published here
http://feedproxy.google.com/~r/businessinsider/warroom/~3/AvJxuJUnrSg/how-to-decide-lay-off-furlough-employees-business-owner
Press Release Distribution

No comments