Written by Alicia Schoshinski, Senior HR Business Partner
The last federal government shutdown was the longest in recent U.S. history. Impacts of the shutdown extended far beyond the Federal Government to businesses and nonprofits, including those that do not receive direct federal funding. Understandably, the shutdown likely prompted many nonprofit leaders to think through options when faced with reduced funding, a potential recession, or other financial hardships. It is prudent to be prepared with contingency plans in the event of any change that affects the business model of your nonprofit.
While some organizations are quick to implement solutions that address workforce payroll in the short-term, it is important to be aware of the legal considerations of such employment actions. The attached white paper provides a legal perspective on furloughs, layoffs or salary reductions. Review the document for specific details.
The key things you should consider include:
Organizations have a number of options depending on their situation. In a situation that is deemed temporary, such as a government shutdown, affected organizations may determine that they cannot afford to pay their employees during this time so they may choose to furlough staff, reduce pay, or require employees to take leave (using accrued, advanced or unpaid leave). They may also send their employees to mandatory training.
Review employment contracts (if applicable) before reducing the pay of an employee. You should review and amend offer letters or agreements with any salary changes and provide reasonable notice.
Layoffs vs. Furloughs. A furlough occurs when the organization requires an employee to work fewer hours than regularly scheduled or to take leave without pay. Therefore, employee pay is essentially reduced for the time not worked. Ensure that you are not violating the Fair Labor Standards Act (FLSA) when implementing a furlough. An organization may execute a layoff when there is not enough work for an employee. This could be a temporary layoff or permanent layoff (reduction in force). There are specific legal considerations for group layoffs so be sure to understand those.
Be aware of employment actions that may cause “disparate treatment.” Employment actions that affect all employees usually do not result in issues of illegal discrimination. However, when the actions affect only certain employees, the organization must be careful so as not to affect a disproportionate number of persons in a protected category so that “disparate impact” results. A good rule of thumb is to spread the hardship over the majority of employees so that you don’t get into such issues and decrease morale with the “surviving” employees as well.
Be careful not to violate “exempt” status when requiring time off. When asking employees who are classified as “exempt” by the Fair Labor Standards Act (FLSA) to take time off without pay, be careful not to cause them to lose that “exempt” status. A provision of the FLSA states that to be exempt an employee must be paid the same amount of money per workweek regardless of the quantity of work. If the employee voluntarily takes leave without pay they may do so in one-day increments without violating the FLSA. If employees are instructed to take leave without pay (involuntarily) in increments less than a full week, you run the risk of violating the FLSA, by therefore, making them “hourly” or nonexempt. We recommend that you consult with your state’s Department of Labor for additional guidance.
Review benefits impacts before taking employment actions. These employment actions may impact benefits eligibility for employees. You should carefully review your plans, policies and COBRA requirements to determine the impact.
If your nonprofit has not already had to take action due to the government shutdown, now is a good time to think through your options and develop plans to be prepared for other occasions of decreased funding. Take this opportunity to consider the legal aspects of your actions, as well as the employee relations impact.
Our whitepaper entitled “Legal Implications of Salary Reductions, Layoffs and Furloughs” can be downloaded here.
by Alicia Schoshinski
Senior HR Business Partner