Small Business Layoffs

I had a phone call last week regarding the need for an area small business to downsize. Their business is seasonal, and the economy has not helped them one iota lately. So, in an effort to survive, they have decided to use a layoff approach with some of their workers, based on season, need, etc.

Based on that call, I thought it might be wise to cover some information on what a small business owner needs to know in terms of layoffs, unemployment compensation, and a policy manual.

First, let me say that I believe it is very important for even very small businesses to have an employee manual. This document can outline what happens in terms of layoffs, such as, how individuals are selected for layoff purposes, or if the type of job lends itself to layoff. For instance, in our area, we have a number of country clubs that have in-house eateries. Some close over the month of January, causing the need for temporary layoffs amongst staff. Staff sign up for unemployment for the period, then report back to work the first week of February. This normal occurrence would be outlined in a policy manual for the establishment.

Layoff decisions can be challenged under discrimination law, so it is important for a business to come up with the reasons for the layoff, based on a set of criteria. A very good discussion on this can be found at the following site:

This discussion also encompasses the WARN Act (Worker Adjustment and Retraining Notification) which applies to employers with at least 100 full-time employees. This act requires a business to provide employees with at least 60 days written notice before a closing of the business which would involve termination of 50 or more employees or a large layoff involving termination of 33 percent or more of the workforce. An employer that fails to comply with WARN may be liable for back pay and attorney´s fees.

Beyond that, wage and hour laws may also impact layoffs. These laws require employers to pay nonexempt employees for the hours they actually worked. Each state has their own set of wage and hour laws, and there are time periods within which an employee must be paid. If employees were promised they would be paid for accrued, but unused, vacation time, sick time or personal days, state law requires that the employer honor the promise. Actually, in some cases, even in the absence of such agreements, state law may still require payment of these items. These items are often rolled into something called “separation pay.”

COBRA is a much used word today, especially in the face of job loss and economically-fueled layoffs. Employers with 20 or more employees are usually required to offer COBRA coverage and to notify their employees of the availability of such coverage. In a layoff situation, employees would be offered the option to continue their current health coverage, however, they have to pay for the coverage themselves. It is best to discuss the options of such coverage with the insurance agency a small business is using to cover employee health benefits, to discover the nuances of the items that will surround payments, amounts, etc.

A business owner should also develop a layoff letter to present to the employee, covering some of the elements discussed in this very good on-line article:

Finally, there is the question of whether vacation benefits and accrued time might affect unemployment collection amounts. For the most part, any lump sum payouts which show up in the final paycheck, have no bearing on the unemployment compensation picture. However, a severed employee cannot receive unemployment benefits for any day they also received vacation benefits, so if an employee decides to use vacation days as part of the layoff, (or if you, as an employer REQUIRE that they be used as part of the layoff) that employee will not be eligible for unemployment for the days chosen as benefit days.

Also, vacation pay or holiday pay may be deducted from an employees’ unemployment compensation benefits depending on whether or not the employer has given them a definite date to return to work at the time of layoff. If an employee was not given a definite date to return to work, any vacation or holiday pay paid to them when the job ends is NOT deducted from their weekly benefit amount. If an employee is given a definite date to return to work, any vacation or holiday pay for the period of the temporary layoff IS deductible from their benefts.

The Pennsylvania Department of Labor and Industry is a good source of information with regard to the type of questions which surround layoffs. To access their website, go here: which will direct you immediately to the Unemployment Compensation section.

While I hate the topic, I feel it is an important discussion for our small business owners. Our SBDC has a Human Resource specialty as part of its program efforts. If a small business owner has any questions concerning issues surrounding employees, employment and other HR related topics, feel free to contact our office. If we don’t have the answer, we’ll find it for you!


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