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From time-to-time, a business finds that it must reduce costs.  This could be due to many reasons, including a loss of business or a public health crisis, like COVID-19.  While there are multiple things that a business can do to achieve needed cost savings, labor and payroll costs may be part of any reduction.

There are several ways in which a business can reduce its labor and payroll costs and the method chosen would be based upon what the business is hoping to achieve. It is essential to understand the differences between them and a Professional Employer Organization (PEO) such as Resourcing Edge can help!


A layoff traditionally is a temporary separation or termination from a company.  Employees are laid off when there is not enough work for them to do.  Typically, the business believes that whatever condition that has occurred causing the lack of work will change, allowing them to recall employees back to work.  There are times that the condition does not change, and the business is not able to recall the employee.  If an employee is laid off, they are usually able to collect unemployment insurance, but that is a decision made by the state that the employee resides.

Businesses that are considering layoffs should always seek professional HR advice as there can be additional considerations such as federal and state WARN laws to consider.


A furlough is a layoff alternative.  Furloughs are temporary and assist the business in retaining staff that they might otherwise not be able to afford at the time.  Employees typically retain their job and benefits.  There are a variety of ways that a business may furlough employees, depending on whether they are nonexempt or exempt employees.

Under the Fair Labor Standards Act (FLSA), nonexempt employees are paid by the hour and are only required to be paid for the hours that they work.  Therefore, employers may reduce the number of hours that a nonexempt employee is required to work in a workweek.

Under the FLSA, exempt employees are not paid by the hour; they are paid by the workweek.  Exempt employees are required to be paid for any week in which they work any hours.  If exempt employees work only 20 hours, their salary may not be reduced; they must be paid for the entire workweek.  In turn, any workweek in which an exempt employee does not work any hours, the FLSA does not require the employer to pay the exempt employee.

What are other things that an employer can do to avoid the risk of jeopardizing the employee’s exempt status?

  • An employer may reduce an exempt employee’s weekly salary and keep it consistent as part of a long-term plan to keep the business viable.
  • Another long-term method would be for the employer to reclassify the employee from exempt to nonexempt.

Lastly, an employer may reduce the hours worked by any employee in a workweek to zero.  This method would require all employees affected, company-wide, department-wide, or all non-essential workers to take one to multiple-weeks of unpaid leave.

During a furlough, employees might be able to collect unemployment insurance, but that is a decision made by the state in which the employee resides.

Reduction in Force

A reduction in force (RIF) is when a position or multiple positions are eliminated permanently.  The employer has no intention to recall the employees affected, and the positions will not be replaced. A RIF carries with it special compliance considerations, especially if the company is offering severance. WARN issues may come into play as well. Expert legal and HR advice is a necessity if your business is considering a RIF.

When a business needs to make decisions that affect the livelihood of its employees, it can be confusing and intimidating.  With Resourcing Edge, companies can depend on our HR expertise to assist you in evaluating your options.

If you’d like to learn more about how Resourcing Edge can help you with HR, payroll, benefits, and more so you can concentrate on your bottom line, contact us.

Jackie Clausnitzer, PHR, SHRM-CP, HR Services Partner

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