Nonprofit Layoffs and Furloughs: Do Them Right

Ask Rita in HR • February 1, 2009 • Email Print

Dear Rita: It looks like we're going to have to lay some people off in the next couple of months. But the management team is also considering furloughs, a week's shutdown, and other choices. The decision about what to do won't be made by us in HR. But we will need to carry out the unpleasant acts. How can we do these legally and nicely? --Dreading It All

Dear Dreading It All: My sympathies are with you and although it probably won’t help you feel better, many community nonprofits  are in the same boat. And your attention to the HOW is important: how people are laid off (or hear about pay cuts, etc.) makes a big difference in how the departing staff feel and how the remaining staff can move forward in a positive way. Each group has to assess what works best on their own particular boat, but here are some things to think about:

1. Layoffs

A first question of course is who should be laid off. While this is largely a management decision based on which positions are the most important to future financial stability, an important HR component is making sure that the layoffs don't put the organization at risk. Check the personnel handbook for policies that address layoff and/or severance pay, and check to see whether employees marked for layoff are on any kind of protected leave (such as family or medical leave, workers' compensation leave, or pregnancy disability leave). If possible, speak with an HR or labor law attorney about employees on protected leave.

In most community nonprofits there aren't, for example, 15 people holding the same position of Social Worker I, with an intention to lay off 3 of these employees. In such an instance, though, it will be important to clarify whether the layoffs are being made based on seniority, on merit, or on a combination of factors. Most organizations would prefer to lay off the least meritorious individuals with the least seniority. The nonprofit should check past evaluations and documentation of performance in order to avoid discrimination claims. For most community nonprofits, however, it will be clear that a position is being eliminated, rather than an individual being selected for poor performance. In all cases, document the whys of each decision you make, perhaps with business necessity as the main theme and with merit and seniority as considerations.

A few specific tips:

• Determine whether your organization is subject to either federal or state Worker Adjustment and Retraining Notification (WARN) regulations. Generally applicable if you have 100 or more employees, and for layoffs of 50 or more employees or 1/3 of your workforce, WARN requires 60-day layoff notices and other steps.
• It's generally better to do a deeper layoff once than to lay off a few people at a time in dribs and drabs: the staff who remain need to feel confident that they will stay on their jobs.
• Most professionals recommend that individuals finish the day or the week after hearing about being laid off, but not longer than that. It's usually difficult for the laid off employee to feel positive about work, and others may feel awkward around them. (See Layoff Stories from Blue Avocado Readers for examples.) But it will be key to discuss how the employee's clients or projects will be managed after his or her departure.
• Letting people know on a Friday will give them the weekend to absorb the news.
• Have a FAQ (frequently asked questions) sheet for people who will be giving layoff news, such as what references can be given, how long the employee will have access to his organizational email account, how will her clients be notified of a change in organizational contact, and so forth.
• Give layoff information face-to-face. Don't tell the employee how hard this is on you. Give the employee a chance to ask questions. Let them know how long their insurance benefits will continue, that they will be receiving the required COBRA (option to continue their health insurance), and unemployment insurance information. Tell them what other support the organization can provide them (such as employment references, severence pay and so on). Employees should also receive most of this information in a formal letter. (We've posted a sample layoff letter as a guide.)
• After layoffs have been announced, managers may be tempted to retreat to their offices and look buried in work, but encourage them to circulate with the staff, ask and answer questions, and demonstrate confidence.

Temporary layoffs, furloughs, and temporary shutdowns

Nonprofits tend to consider only permanent layoffs. Sometimes short-term layoffs can be effective ways to save jobs while protecting the organization's financial status. For example, there may be an unexpected two-month gap between the completion of one government contract and its renewal. In the past, your organization may have been able to keep paying the individuals on that contract during the gap, but this time you may need to lay them off, letting them know that if the renewal comes through they may be called back within several weeks. However, check your state laws to see if you are required to pay out all accrued vacation if you close down for a week or more. We know of at least one nonprofit charged with violating such a requirement that had to pay substantial fines and penalties before it reopened its doors two weeks later.

A furlough is specified unpaid leave, such as workweeks reduced by one day, or months reduced by two full days each. Typically employees request the days they would like to use for their furloughs. In effect, furloughs change full-time positions into slightly part-time positions for non-exempt staff. Some furlough tips:

• Exempt employees cannot be paid for less than a full week if they have worked any day that week (remember that obscure definition of the workweek in your personnel handbook?), so furloughs don't reduce payroll costs for exempt staff. What you can do, however, if you are furloughing exempt staff for one day per week, is to reduce their full-time salaries by 20%.
• Be clear whether employees will continue accruing vacation and receiving benefits at their full-time levels (typically yes), and whether an employee taking a furlough on a holiday will still be paid for the holiday (typically no).
• Keep in mind that some international staff on H1-B visas may need to work a certain number of hours a week to be eligible to work in the United States.
• Remind employees whose wages are being garnished or who have deductions for child support that these amounts may be affected.

Some nonprofits pick a slow week (perhaps Fourth of July week, school spring vacation, etc.) to close down. Closing for a full week allows the organization to save on both exempt and non-exempt payroll (remind exempt employees that they cannot do any work that week -- even checking their work email -- lest they trigger a legal requirement to pay them for the full week). Some employees may find this a relatively easy cut to accept, but for others, even a one-week closure may result in a loss of pay that is untenable. Give employees the option of using their accrued vacation pay during the shutdown or taking the week off as unpaid leave, otherwise you may be required to pay out all accrued but unused vacation.

Finally, remember that many, many nonprofits (and for-profits) are feeling the pinch. Reach out to contacts in other nonprofits to see how they're handling things, and to identify local resources for people losing their jobs. And post a Comment below to let Blue Avocado readers know your ideas and tips. 

See also:

• Sample Layoff Letter
• The Nonprofit Board's Role in HR