Friday, January 25, 2019, marked the end of the longest government shutdown (35 days) in U.S. history, affecting approximately 800,000 federal government employees and many other federal contracting employees. The previous shutdown record was twenty-one (21) days, from December 16, 1995 to January 6, 1996, during President Clinton’s administration. During the preceding six (6) years, there have been four (4) different government shutdowns of varying duration. Prior to that, the next four (4) shutdowns occurred over a span of ten (10) years. Like it or not, government shutdowns are becoming more frequent, as both political parties use the shutdown to extract political or legislative concessions from the other side.
It was against this backdrop that one of C2’s longstanding government contracting clients phoned asking for some HR “best practices” guidance. Our client had no contracts that were affected by the most recent shutdown, but wanted to be ready for the next time it happens. As we explained to our client, although every company and workforce is different, there are some key issues that they should be prepared to tackle if some of their workers are affected by the next government shutdown.
A. Government Shutdowns and the “Furlough” Designation
What does a shutdown “furlough” mean to federal contractors and their employees? According to the Office of Personnel Management (OPM), a furlough is “the placing of an employee in a temporary nonduty, nonpaid status because of lack of work or funds, or other nondisciplinary reasons” with some exceptions. OPM provides a reference document to help further explain the use of the furlough: “Excepted” employees (mostly emergency responders involved in the safety of human lives) are usually notified that the (https://www.opm.gov/policy-data-oversight/pay-leave/furlough-guidance/guidance-for-shutdown-furloughs.pdf).y need to continue to work, while the other non-essential employees or contractors will receive a Stop Work Order (SWO).
If your company does not receive a SWO, then you have options beyond the typical furlough. First, if your contract has already been fully funded, you could continue to allow your employees to go to work. However, depending on the contract and your employees’ need to interface regularly with their government counterparts (who will not be working during the shutdown), it may be impractical to have your employees report to their assigned workplace. The second option would be to reduce employees’ work hours on the contract or, where feasible, shift them temporarily to another contract within your company that is unaffected by the government shutdown.
B. Using Other Types of Leave During a Shutdown
Contractors are not required to furlough their employees and, in fact, may utilize other leave options for their employees who cannot go to work due a government shutdown. Many contractors allow (or even require) employees to use accrued paid leave during a shutdown. For employees who lack sufficient accrued leave to carry them through the shutdown, companies can allow those employees to go into a negative leave balance so that the employees continue to receive a paycheck. Another, often overlooked option is allowing employees to file for unemployment benefits during the shutdown. Companies with contracts in states that provide unemployment benefits for this type of event may choose to provide employees with the contact information for their applicable state unemployment agency and even provide assistance with filing claims. Under normal circumstances, this is not an approach most employers would take. However, given the choice of either having to continue to provide paid leave or letting them leave for other positions at other companies (some of whom could be key employees), unemployment benefits can often provide a compromise solution.
A third option that some companies utilize is allowing affected employees to take leave without pay (LWOP). Although the employee receives no paycheck, this option allows the individuals to continue to be employees of the company, and may at least remain eligible for benefits under the company’s benefits policies. However, benefits eligibility can vary according to the terms of each policy’s master plan document, so companies should consult their benefits administrator and the carrier before conveying benefit options to employees who are in a LWOP status.
C. Compliance with the FLSA and State Wage Laws
Contractors who have both exempt, salaried and hourly-paid, non-exempt employees working on a contract that is shutdown need to pay attention to the Fair Labor Standards Act (FLSA) and state wage law compliance – particularly during the first week and last week of the shutdown. Non-exempt, hourly paid employees provide little cause for concern – if they do not work, they do not get paid. Exempt, salaried employees, on the other hand, are typically entitled under the FLSA and most state wage laws to be paid for a full week’s salary, regardless of the number of days or hours worked during that workweek (subject to a few exceptions). So, if the government shutdown takes effect on a Wednesday, for example, and then concludes and employees go back to work three weeks later on a Tuesday, employers need to understand whether and under what circumstances they might have to pay their exempt, salaried employees for those partial workweeks that “bookend” the shutdown.
While exempt employees need not be paid their salary for weeks in which they perform no work, employers cannot deduct for partial week absences that are forced upon the employee due to the operational needs of the business. Thus, forced furloughs of salaried employees that last less than a full workweek can result in losing the exemption under the FLSA and state wage laws. An easy way to avoid this result, though, is to require the exempt employee to use accrued paid leave (or go in arrears) for the partial week absences, so that their salary for those partial workweeks at the beginning and end of a shutdown remains unchanged. Another option is to allow the exempt employee to voluntarily take unpaid leave (in whole day increments) for those partial weeks. But be careful: the use of this option must truly be at the employee’s option. A “forced furlough” of a salaried, exempt employee for a partial week is not allowed under the FLSA.
D. Managing a Shutdown Means Helping Your Employees
In today’s society, living paycheck to paycheck is not uncommon, so any decrease in pay can be a huge problem for your company’s employees. However, as the most recent shutdown demonstrated, many organizations in our local communities not affected by the shutdown (e.g., churches, food banks, lending institutions, and various private businesses) were willing to provide assistance, suspend affected employees’ debt obligations, or provide food while the shutdown continued.
The largest expense most employees face is their mortgage, or rent. During the most recent shutdown, USAA, Navy Federal, PenFed, FedChoice, Wells Fargo, and BBVA Compass, just to list a few, offered various types of assistance to its mortgage customers affected by the shutdown. And Fannie Mae, and Freddie Mac offered streamlined refinancing options or allowed homeowners to exchange some of their home equity for cash to help cover short-term expenses during the shutdown.
In short, businesses and community organizations have shown a willingness to help employees affected by a government shutdown. While the resources available to each community will certainly differ, contractors with affected employees would do well to research some of these resources and provide its employees with a list of options to help get them through until a shutdown concludes. Treating your employees in a compliant manner from an HR perspective is important, but it can be just as important to provide your employees with the necessary tools to manage a shutdown on a personal and family level.
C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only