This information summarizes information regarding how employee benefits may be affected by layoffs or furloughs. It is not legal advice; please consult your benefits advisers and attorneys for advice as you plan for possible staff furloughs or layoffs.
Nor is this a complete list of all considerations, but offers some issues to think about when contemplating furloughs or layoffs.
Always consult your plan documents, your benefits advisors (who usually have excellent legal counsel to answer questions) or your own employment law attorney before proceeding.
Furlough versus layoffs:
A furlough is mandatory, temporary, unpaid leave, and assumes the employees will return to work.
Layoff is a full separation from the company.
Health Plans:
Whether health coverage will terminate based on a furlough is governed by your plan documents, and insurance contracts. Consult them first!
Furloughs do not necessarily mean a loss of coverage; it depends upon what is in your plan documents and company policies that support the plan documents.
Furlough is not a COBRA qualifying event unless it results in a loss of health coverage; if it does the employer must issue COBRA notices and allow the affected individuals to elect COBRA coverage.
An employer could consider making policy changes regarding eligibility for coverage during a furlough, but should do so with great caution. Changes could mean that the company policy no longer aligns with the ACA, triggering penalties for the employer. Moreover, employers that expand coverage outside the terms of the plan without consent of the insurance carrier face potential huge financial exposure.
Employers must decide how to handle employee portions of the premiums during a furlough. Choices could include reducing or waiving the employee portion, having the employee pay the employer by check, or allow the employees to make up their portion when they return to work.
For employers with DFSAs and HSAs a furlough will probably trigger a mid-year change event.
For other benefit plans such as life insurance and disability, consult your plan documents.
Furloughed employees should be encouraged to apply for unemployment benefits immediately; many states have waived wait periods for COVID related furloughs or layoffs.
Other considerations:
Furloughed employees should NOT be allowed to work in any form whether exempt or non-exempt. Employees working during furlough may make the company liable for the full salary for the pay period if exempt, or for any time worked if non-exempt.