How federal workers can prepare financially under threat of a government shutdown and layoffs

Congress has until midnight on Tuesday to pass a funding bill and avoid a shutdown of the federal government. If lawmakers can’t agree, hundreds of thousands of federal employees could be without a paycheck — or worse. While federal workers are typically put on unpaid leave during a shutdown, President Donald Trump has threatened mass firings if a deal isn’t reached.

If your paycheck is at risk, now is the time to plan for delayed or lost income. 

Government shutdowns have historically been short, with many lasting just a few days. But if you’re living paycheck to paycheck, any pay gap is challenging, especially as everyday costs are increasing.

“The last time we had something like this, it wasn’t the entire government, but it was 35 days, and that went up to close to three paychecks for people,” said John Hatton, staff vice president for policy and programs at the National Active and Retired Federal Employees Association.  

Start with a vigorous accounting of expenses: “Three things you really need to focus on … cash flow, cash flow and cash flow,” said Mary Clements Evans, a certified financial planner and owner of Evans Wealth Strategies in Emmaus, Pennsylvania.

Many people don’t have an understanding of their monthly expenses beyond the large essentials like rent or mortgage and car payments, she said.

“We’re in a world where we’re disconnected from our spending habits,” Evans said. Automatic payments and debit or credit card swipes make it harder to gauge discretionary spending. 

Once you have a handle on expenses, plan for reduced income. This may mean determining which savings to tap and adjusting your budget. 

Reach out to your lenders. Financial institutions may offer payment deferrals, loan modifications and other forms of hardship assistance. For example, some credit unions are preparing to offer federal workers whose pay is impacted in a shutdown zero-interest loans.

The Trump administration’s plan for a “reduction in force,” or mass layoff, in the event of a shutdown, is a new wrinkle for federal workers. “We are in uncharted territory,” said Hatton.

Traditionally, during a shutdown, a majority of employees at agencies funded through the annual appropriations process are put on furlough, or unpaid leave, if the agency hasn’t received funding. Those whose work is necessary to protect life or property, or to deliver mandated benefits, are considered essential and required to work. Employees are promised back pay when the government reopens.

“This is always a difficult situation for federal employees,” he said, “whether they’re working or furloughed or now, adding this new option of receiving a RIF notice, for possible permanent loss of their employment.”

It’s unclear how a massive RIF would be carried out under a government shutdown, experts say.

There are legal requirements for an RIF: Agencies must provide justification for the layoffs, give written notice to employees 60 days before a layoff and offer an appeals process. During a shutdown, only “essential” functions are supposed to be carried out, and experts say it’s uncertain if carrying out mass layoffs would fit that definition.

To prepare for a possible layoff, research unemployment benefits, and determine when your health coverage might end.

Also research health insurance costs. Workers may be able to extend their federal workplace plan for up to 18 months through the Temporary Continuation of Coverage option — but must shoulder the full cost of premiums.

A more affordable option, for now, could be marketplace coverage under the Affordable Care Act. “You can go and you can get insurance through them, and that is based on your income,” said Evans. However, the enhanced subsidies that have kept premiums low are set to increase at the end of the year, unless Congress acts.

Those subsidies are a key sticking point in the current government funding debate. Democrats say they want to extend them as part of the current budget negotiations, while Republicans say they want to debate the policy later this year.

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