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5 Tips for Laying Off Furloughed Employees


A furlough allows you to place employees on temporary unpaid leave, keeping them on your payroll and saving you the trouble of rehiring them when it's time to recall them to work. Usually, furloughs are initiated by the employer as a cost-cutting strategy during economic downturns. 
Sometimes, to stay afloat, employers are forced to lay off furloughed employees. Here are five steps to take when this happens: 

1. Send the employees a termination notice.
Under the WARN Act, covered employers must give employees 60 days' advance notice of qualified mass layoffs or plant closings. Also, some states have their own WARN Act or mandate some type of written termination notice. For example, California requires immediate written notice to employees who have been involuntarily terminated or laid off.  

If your state does not require termination notices, it's still good practice to mail or email a letter to the furloughed employees, advising them of your decision to lay them off. The letter should address other pertinent issues, such as benefits and post-termination pay. 

2. Be considerate when conducting the layoff.
Since the employees were initially furloughed rather than terminated, they were likely productive workers and probably anticipated returning to work. The layoff may be disappointing for them, so be empathetic.   

For example, give the employees a heads-up, such as by phone, before sending your written termination notice. Let them know you appreciate their contributions to the company and your doors are open to them should things turn around. 

3. Inform the employees of changes to their benefits.
Some employers let employees maintain their group benefits — such as health insurance — while on furlough. Others permit employees to defer their contributions until they return to work. 

Now that the employees are being laid off, you'll need to give them the necessary benefits information, such as notice of continuing health insurance coverage under COBRA. If the employees participate in your 401(k) plan, tell them the rules for staying in the plan in case they would like to do so.  

4. Check your paid time-off policies.
For employees who didn't use all their paid time off while on furlough, you might have to pay out their unused time upon termination, depending on state law or company policy. If paid time off is mandated by a federal, state or local law, whether unused time off should be paid out upon termination comes down to the law in question.  

Explain in the termination notice what will happen to the employees' unused paid time off. 

5. Determine your severance obligations.
This will depend on whether there's a company policy or an employment contract requiring severance pay. Consult with an attorney if you have an obligation to pay severance to furloughed employees but are unable to because of financial constraints.

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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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