Layoffs vs. Furloughs: What’s the Difference?

three professionals at table discussing Layoffs vs. Furloughs

Companies all across the country are scrambling to figure out how to adjust to the new normal that is operating a business during the COVID-19 pandemic. One question they are often asking is, “What is better when needing to reduce work hours — layoffs or furloughs?”

Layoffs and furloughs are ways for businesses to adjust their workforce during COVID-19, and each comes with unique advantages and disadvantages for both the employer and the employee.

To help you determine which might be right for your business, let’s compare layoffs vs. furloughs and see how they affect both employees and employers.

What Is a Layoff?

A layoff is a temporary or permanent termination of employment. Layoffs occur when there is a lack of available work from an employer, and it is uncertain whether the demand for the work will return. If there is not enough work to bring employees back, layoffs can lead to a permanent reduction-in-force.

What Is a Reduction-In-Force (RIF)?

A reduction-in-force is a permanent termination of employment. RIFs occur when there is a lack of available work from an employer, and the employer is certain that the demand for the work will not return.

A furlough is a temporary pause or reduction of employment. Furloughs occur when there is a lack of available work from an employer or the employer doesn’t have the resources for payroll. The employer is fairly certain that the demand and resources for the work will return and that they will be able to hire the staff back to regular working hours.

Comparing Layoffs vs. Furloughs

Now that we’ve reviewed the methods for reducing a workforce, let’s compare layoffs vs. furloughs to see which might be right for your business.

Is the termination of work permanent?

  • Layoff: Maybe
  • Furlough: No

In a furlough, employers plan to call employees back to work. While a furlough can turn into a layoff or reduction-in-force, the employer implements a furlough because they expect the reduction in work to be temporary. If employers are less certain that work will return to normal, they may implement a layoff. During a layoff, the employer may hope to bring back employees, but they may not be certain it will or can happen.

  • Layoff: No
  • Furlough: Yes

A layoff is a complete termination of work, so the employee cannot work reduced hours. Because a furlough isn’t necessarily a complete termination of work, employers may ask employees to work reduced hours. While furloughed employees may have their hours cut, they can only work within the constraints of their new hours.

To assure compliance, employees that are fully furloughed (and have no paid hours) cannot conduct any business. There is a zero-tolerance rule that restricts furloughed employees from doing anything as small as checking their email while they are off.

Is the employee still employed?

  • Layoff: No
  • Furlough: Yes

When an employee is furloughed, they are technically still employees. They retain employment rights. Laid-off employees are no longer considered employees of the organization and do not retain their employment rights.

Does the employee still receive employer-provided health benefits?

  • Layoff: No
  • Furlough: Maybe

Because someone who is laid-off is no longer an employee of the company, they lose any benefits that are included with their employment. This includes health benefits. Laid-off employees are no longer eligible for coverage under the business’s group plan, and they can apply for benefits under Consolidated Omnibus Budget Reconciliation Act (COBRA).

Furloughed employees may continue to receive health benefits under their employer’s plan, but it is not guaranteed or required. Employers decide how they want to handle health benefits, and it may be different for full or part-time employees.

Can an employee collect employment?

  • Layoff: Yes
  • Furlough: Yes

Employees that are laid-off can apply for and collect unemployment in their state. Furloughed employees may also apply for and collect unemployment in their state. Furloughed employees who have a reduction in hours (rather than a full stoppage of work) may apply but receive different benefits.

Does the employee receive paid time off (PTO) compensation?

  • Layoff: Yes
  • Furlough: Maybe

When an employee is laid-off, they are no longer considered an employee, so they must be compensated for any accrued paid time off. Furloughed employees are still employees so employers are not required to pay them for accrued paid time off, but employers may decide to compensate employees.

Layoffs vs. Furloughs: What’s Right for Your Business?

Choosing between employee layoffs or furloughs isn’t always an obvious choice. There are many factors to consider that impact both your business and your employees, and each state may have different rules and guidelines that add even more considerations to the decision.

If you need help deciding what is the best option for your business, CareerSource Central Florida is here to help.

Our team can help you navigate shifts in your workforce whether you are reducing your workforce or hiring them back. Request your free consultation to see how we can help you navigate changes in your workforce.