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Thread: furlough vs layoff, exempt salaried vs hourly Texas

  1. #1
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    Default furlough vs layoff, exempt salaried vs hourly Texas

    I own a small business (corp) with just a few exempt salaried employees. Thanks to the current economic conditions, our workload is slowing dramatically and may run out very soon. We do not want to lose these good employees given the unknown future, as we would need them when biz improves. We do not know if or when things might improve, of course. A couple questions:

    1. Furlough vs. layoff. As the work slows to a trickle, do we advise the employees they are being furloughed and will not be paid after the last day of available work? Or go ahead and layoff people as is necessary? I've read the exempt salaried employees on furlough can't work at all - no email, phone, nothing - or else they must be paid for the whole week. That suggests if we run out of work on Tuesday and send them home, I pay them for the whole week. It also prevents me from giving them a small amount of work while furloughed i.e. a few hours or a day or two - which the employees would want since they need whatever money they can make. I would prorate their pay in that situation based on their salary. I've also read if they are furloughed, they can apply for UI immediately, which may conflict with our ability to have them work again - short or unknown longer term - when it is available. I would maintain their benefits if furloughed. It gets trickier yet when I consider they could be furloughed with benefits, but what happens if my business doesn't improve in 2, 3, 4, or more months, as at some point I would have to cut benefits, too, given the lack of cash flow. What to do?

    2. Exempt salaried vs. hourly. Given the puzzle in question 1 above, should I convert everyone to hourly so I can pay them for whatever amount of work I can provide them? Is this allowed by law? If it is allowed, does that prevent them from filing for UI? That is not my objective, but it is a reality I would have to know how to handle. The employees may object if I tell them - or they figure out on their own - that hourly would work best but shuts them out of UI. I do not want to create animosity. I would maintain their benefits if hourly.

    Are there other options to deal with these conditions I am missing?

    Tough times, tough questions. Thanks.

  2. #2
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    Employees (and former employees) can always apply for UI. They might not get it, but they can always apply. UI generally looks at the reduction in wages as the triggering factor, not the reduction in hours, or the change in Exempt v. Non-Exempt status, or what "word" is used to describe the change in status. I do not know that the exact rules are in your state, but some states use a 30% (give or take) reduction in wages to trigger UI eligibility.

    It is legally possible to permanent change an Exempt Salaried employee to Non-Exempt (salaried or hourly) on a go-forward basis. It is not legally possible to flip the status back and forth like a light switch whenever you feel like it. Changing the employee to Non-Exempt is legally easy. Changing them back again is not legally easy.
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  3. #3
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    1. Furlough has no legal status so I'm not sure what you're reading. Furlough vs. layoff is merely a semantics issue. You are correct that for your exempt employees, you must pay them for the entire week if they work any portion of that week (with a very few exceptions that don't apply here.)

    Employees, whether "furloughed" or laid off are eligible to apply for unemployment benefits. Any individual receiving UC benefits who also receives any wages must report those wages to the UC Division. You can maintain any employee's benefits while on furlough/layoff, although you will want to put some time limits on that or it will get quite expensive for your business. Figure out what you think is affordable and then inform those affected employees that you will maintain their group health benefits for "X" month(s). They need to know that going into this so that they can make any necessary plans (going on a working spouse's plan as of a certain date, for example.)

    2. Yes, you may change your exempt employees to non-exempt status. No, it will not prevent them from filing for unemployment benefits. What I would do is pay them on an hourly basis for any work they perform while on layoff and when/if you are able to return any of these employees back to work full-time, return them to exempt status. There won't be any legal difficulties with that.

    You clearly are trying to do everything possible for your employees and your business. Once you decide what you're going to do, just explain everything honestly to the effected employees. Being candid is your very best option.

    Good luck.

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    Actually, I happened to attend a workshop on this kind of issue yesterday. Based on what I heard yesterday, I would tend to agree with Beth that what you propose is probably okay based on a recent guidance letter they referenced from DOL, the impression that DOL seems to currently be trying to cut some employers some slack in this regard given the current economic crisis, and the fact that you are not in CA (which does everything their way). However, the impression I had from the attorneys in the workshop is that what you propose would probably be much safer if this were a longer term change, lasting several months, and not something you were going to flip-flop on multiple times a year. They could not give an exact figure, i.e. number of months, but basically their guidance was the more you flip back and forth in terms of laying off exempt ee's (but allowing them to work a few hours here and there as non-exempt) and then return them to work full-time as exempt, the more likely DOL would be to view this as a "sham".
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    I agree, MP. The OP is much better off maintaining these exempt employees on hourly status until business conditions pick up enough that he's comfortable they're returning to full-time work for the long term. Returning them to exempt status for a week or two of full-time work that happens to be available is not a good idea.

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    Thank you all for the opinions and suggestions. I do appreciate it, as my good friend Google couldn't otherwise enlighten me so clearly.

    It sounds like I will switch everyone immediately to hourly since it is allowed and will be a fair deal for all parties. I have no plan to 'flip flop' their status, as it would just create more problems and don't think it solves anything.Is there a reason why I wouldn't just keep their status hourly for the long haul (hopefully will have a long haul. . .) since it seems clear our business is going to cycle with this wacky economy?

    Good advice on setting time limits on the benefits, too, instead of open-ended. I can't predict the future, unfortunately.

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    Just to be clear, you keep saying "hourly" which is fine, but what is important is Non-Exempt. "Hourly" is just a payment method and does not mean much by itself. Non-Exempt however (no matter what payment method is used) means:
    - Must pay at least minimum wage based on hours worked for each workweek.
    - Must pay overtime for all hours worked past 40 in the workweek.
    - Subject to FLSA record keeping requirements documenting hours worked (and other things).

    "Hourly" is the "tail" - "Non-Exempt" is the "dog". The feds really do not care much about the payment method used for Non-Exempt employees, but they care very much that the three rules I mentioned are followed for all Non-Exempt employees.
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    DAW. . . yes, I did mean 'non-exempt' and we should easily meet the 3 main items you mentioned. Thank you for clarifying, it makes sense to me.

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    Is there a reason why I wouldn't just keep their status hourly for the long haul (hopefully will have a long haul. . .) since it seems clear our business is going to cycle with this wacky economy? It is always legal to pay any employee on a non-exempt basis - as long as you comply with the FLSA requirements DAW has detailed.

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