How to Help Navigate the Government Shutdown

As the government shutdown continues without any clear end in sight, we felt it prevalent to put together some HR and Payroll clarity that may help our clients that either directly or indirectly rely on government contracts.

Understanding the Impact on Your Business

While a shutdown directly affects government employees and contractors, its indirect effects can touch nearly every business. You might experience delays in federal services like E-Verify, SBA loan processing, or IRS assistance. Furthermore, employees with spouses who are federal workers may face financial hardship, impacting their focus and morale.

Recognizing these potential disruptions is the first step. A proactive approach allows you to support your workforce and maintain business continuity, even when external factors are unpredictable.

Payroll and Compensation During a Shutdown

Payroll is the lifeblood of your workforce, and maintaining its integrity during a shutdown is crucial. Key considerations include how you classify and pay employees, especially if your business relies on government contracts.

Exempt vs. Non-Exempt Employees

How you handle pay depends heavily on an employee’s classification under the Fair Labor Standards Act (FLSA).

  • Non-Exempt (Hourly) Employees: You are only required to pay non-exempt employees for the hours they actually work. If a project slowdown forces you to reduce their hours or place them on furlough, their pay will decrease accordingly. Clear communication about scheduling changes is essential.
  • Exempt (Salaried) Employees: The rules for exempt employees are more rigid. If they perform any work during a workweek, you must pay their full salary for that week. Deducting pay for partial-day absences or a temporary work reduction can jeopardize their exempt status, leading to significant wage and hour compliance risks. If you must reduce costs, a full-week furlough is often the only compliant option.

Furloughs vs. Layoffs

It’s important to distinguish between a furlough and a layoff.

  • Furlough: A furlough is a temporary, unpaid leave of absence where the employee is expected to return to work. Employees typically retain their benefits, though you must check your plan documents to confirm how premiums are handled during unpaid periods.
  • Layoff: A layoff is a permanent separation from employment. This action triggers final pay requirements, COBRA notifications, and potentially severance agreements.

For shutdown-related work stoppages, furloughs are generally the preferred method. Ensure your furlough notices are clear, in writing, and specify that the situation is temporary. Instruct furloughed employees—especially exempt staff—to perform absolutely no work, including checking emails or taking calls, as doing so could trigger pay obligations for the entire week.

Other areas to consider are the following:

  • Furlough Pay Rules: For non-exempt employees, pay is only required for hours worked, meaning no pay is necessary for furlough days. Conversely, exempt employees must receive their full salary for any week they perform any work—even if it’s just for one day. Employers may be able to require the use of accrued PTO or vacation time during furloughs, but you must ensure your existing policies and contracts allow it.
  • Federal Contractors: Generally, temporary furloughs lasting less than six months typically do not trigger the federal Worker Adjustment and Retraining Notification (WARN) Act, which requires a 60-day notice for mass layoffs. However, be mindful that state-level “micro-WARN” laws may still apply.
  • Benefits and COBRA: Review your health plan terms to see if furloughs trigger COBRA eligibility. Any changes in an employee’s hours or employment status could affect their coverage.
  • Unemployment: Furloughed employees may qualify for unemployment benefits, depending on the laws in your state. Even partial-week furloughs can trigger eligibility in some states

Navigating Compliance and Administrative Hurdles

A government shutdown can temporarily suspend or delay critical federal services that HR departments rely on.

E-Verify and I-9 Compliance

During a shutdown, the E-Verify system becomes unavailable. This does not, however, suspend your obligation to complete Form I-9 for new hires.

  • Form I-9: Continue to complete and sign Form I-9 within three business days of a new employee’s start date.
  • E-Verify Cases: If you are an E-Verify employer, you cannot create new cases while the system is down. You should also not take any adverse action against an employee whose case is in a “Tentative Nonconfirmation” (TNC) or other delayed status. Once the system is back online, you will be given guidance on how to handle the backlog. Document everything carefully.

Other Agency Delays

Be prepared for delays from other agencies, such as:

  • Occupational Safety and Health Administration (OSHA): On-site inspections for non-emergency situations may be paused.
  • Internal Revenue Service (IRS): Expect slower response times for employer inquiries.
  • Small Business Administration (SBA): Loan processing will likely be halted.

Factor these potential delays into your planning and deadlines.

Communication and Maintaining Employee Morale

In times of uncertainty, clear, consistent, and empathetic communication is your most powerful tool. Employees will look to leadership for reassurance and direction.

Supporting Your Employees

Morale can dip when employees are worried about their finances or the stability of their jobs.

  • Highlight Employee Assistance Programs (EAPs): Remind your team about available resources, including financial counseling and mental health support through your EAP. These services can be invaluable for employees facing personal or household financial stress.
  • Offer Flexibility: Where possible, offer flexible scheduling or remote work options. An employee whose spouse has been furloughed may need to adjust their hours to manage childcare, and offering that flexibility can build immense loyalty.
  • Foster a Sense of Community: Organize virtual or in-person team activities that reinforce a sense of shared purpose and camaraderie. Keeping the team connected can help mitigate feelings of isolation and anxiety.

Stay Informed and Proactive

A government shutdown tests the resilience and preparedness of any HR department. By focusing on compliant payroll practices, clear communication, and empathetic employee support, you can navigate this challenge effectively. Use this time to review your policies, prepare communication templates, and ensure your team knows the plan.

This blog does not constitute formal HR or legal advice and does not address state or local laws. Our HR Resource Center by Mineral offers further guidelines for this and many other topics. For a small additional fee you can also speak to a live HR Specialist. Contact your friendly APlus Payroll CSS for further information (including login details) or login here. Want to know how we can help your Payroll or Time & Labor process? Please contact us here. Consultation is friendly and free!