COVID-19 Fallout: How to Avoid Layoffs and Protect the Financial Health of Your Organization
The fallout of the COVID-19 global pandemic has many employers wondering how much longer they can afford to keep their workers employed. Closing parts of society in order to protect the health and wellbeing of vulnerable individuals has come at a major economic price. Leaders of small businesses, nonprofits, and churches all across the country don’t know if their organization will survive this government-imposed economic shutdown. Many employers are now faced with the difficult decision of letting employees go in an attempt to save the organization. This article will discuss alternatives to terminating employees, address recent federal efforts to help employers keep their staff employed, and both state and federal efforts to assist employees who are unemployed or underemployed.
Alternatives to Termination
The most obvious way to cut costs for an organization is to lay off employees. For some employers, termination might ultimately be necessary, but it is not a first choice. There are other options available to employers who must reduce costs, but do not desire to let any employees go. One possibility is to reduce employee hours and/or compensation. Dropping employee hours or compensation per week is a better alternative to termination, because it relieves the employer of the entire financial burden of a fulltime employee while maintaining an employee with institutional knowledge of the organization. From the employee’s perspective, there is still an income stream.
Another alternative to layoffs is furlough. Furlough is a temporary forced unpaid leave from the company. During furlough, an employee loses his or her salary, but often retains company benefits like healthcare and technically remains an employee of the organization. The intent behind this action is that the arrangement is only temporary and the employee will return to work for the organization. Furloughing can keep employees who are valuable because they hold institutional knowledge and don’t require training. Additionally, employees who are furloughed or have a significant reduction in hours/compensation are eligible to file for unemployment. This will be discussed further below.
Federal Government Assistance
Another alternative to terminating employees is taking advantage of financial assistance from the federal government. On Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) became law. This bill provides $2 trillion in stimulus funding to assist individuals and businesses adversely affected by COVID-19. Most notably, the CARES Act authorizes a Paycheck Protection Program that allows businesses, nonprofits, and veterans organizations that employ 500 people or less to request a payroll loan from the federal government. The loan can be 2.5 times the organization’s monthly payroll costs with a maximum loan amount of $10 million. Eligible payroll costs include salaries, cash tips, payment for vacation, parental, family, medical or sick leave, health care benefits, insurance premiums, retirement benefits, and state or local tax assessments on employee compensation. Loan funds may also be used on mortgage interest, interest on other debt obligations, rent, and utilities. Borrowers are eligible to have 100% of their loan forgiven if they use the loan on payroll. In essence, this turns the loan into a grant. The amount of loan forgiveness is based on the number of employees employed by the organization. The program is meant to incentivize employers to keep people working. There is less loan forgiveness if there is a reduction of workers or a reduction of more than 25% in wages paid to employees. According to the Act, the money must be used for expenses incurred between February 15, 2020 to June 30, 2020. If repayment of the loan is necessary, it can be deferred for up to a year.
If termination is the only option for the organization, and for furloughed workers, businesses can help workers take advantage of available unemployment resources. The CARES Act provides additional federal funding of $600 per week on top of state unemployment benefits for up to four months. In addition, the CARES Act permits an additional 13 weeks of unemployment benefits until December 31, 2020, for individuals who are still unemployed after state unemployment benefits have been used.
States are also trying to expedite, enhance, and streamline state unemployment benefits to their residents. For example, in Colorado, unemployment benefits have been extended from 26 weeks to 39 weeks, the waiting period to begin accruing benefits has been eliminated, the searching for work requirement has been waived, and the process is faster than before.
Employees understand that things are tough, and a large part of the anxiety around COVID-19 relates to uncertainty about the future. While employers also cannot know what is coming next, they can do a lot to mitigate anxiety for employees. Being transparent with employees about the economic situation of the business is usually better than leaving employees in the dark, wondering when the axe will fall. The employer can let employees know about possible steps the business may take, such as temporary reduction of hours or salaries, applying for the Paycheck Protection Program, furloughing, and termination, and the factors that would influence different choices. The employer can also make sure that employees know how to apply for benefits that are available to them.
The global health crisis has left employers across the country in a tough spot. Many employers are trying to find a way to keep their people employed and their business thriving during this challenging time. There are ways to avoid layoffs and still protect the financial health of the organization. Contact legal counsel if you need assistance determining how your organization can take advantage of government assistance.
Featured Image by Rebecca Sidebotham.
Because of the generality of the information on this site, it may not apply to a given place, time, or set of facts. It is not intended to be legal advice, and should not be acted upon without specific legal advice based on particular situations