How to Understand the Difference Between Furloughs and Layoffs

Over 1.1 million layoffs were announced by US businesses in 2025, with telecommunication, technology and the food industries the hardest hit. Employee turnover overall was on average around 2%, in 2025. An economic downturn can put HR professionals in the difficult position of guiding employees through furloughs or layoffs.

But before you find yourself in that situation, it’s important to understand the difference between furloughs and layoffs so you can make the right decision if the time comes. HR can help your employees as they grapple with the personal impacts of those decisions.

Parting ways isn't easy, but BambooHR® Offboarding helps make the process go as smoothly as possible, all while maintaining compliance. In this article, we'll discuss different types of furloughs vs. layoffs, when they might be necessary, and how to prepare for the hard conversations ahead.

Furlough vs. layoff: what’s the difference?

Let’s be clear: a furlough and a layoff are two different things: a  furlough  allows employees to keep their jobs during a period of change, but lets the business reduce how much they pay in wages, while a layoff is the permanent termination of an employee's contract due to matters affecting the business.

Whether you have to put people on a furlough or lay them off, both situations can be extremely difficult for the employee—especially if they are living paycheck to paycheck. But when your company is in a bind, you sometimes have to make hard choices.

Let’s look at both options more closely.

What is a furlough?

A furlough is a temporary, unpaid leave of absence, reduction in hours, or pay cut. It can be used as an initiative to retain employees while protecting the company’s bottom line.

The purpose of a furlough is to reduce business costs while keeping your employees in a job. This is either to divert funds elsewhere or to avoid critical spending during a period of closure.

While employees don’t usually receive furlough pay, they do often get to keep their benefits—such as health and life insurance. Usually, they can apply for furlough unemployment benefits, too.

Laws for furloughing employees can vary by state, so you should work with your company’s legal counsel to ensure you are handling the situation appropriately.

Both exempt and non-exempt employees can be furloughed, but the process varies for each group.

How long can a company furlough an employee?

Furlough policies can vary, and the amount of time an employee can be furloughed for can depend on the final situation of your business. However, bear in mind that furloughs are supposed to be a temporary solution and shouldn’t really last longer than a year.

If you feel like the furlough period may exceed 12 months, a layoff and reduction in the workforce may be a more suitable option.

Furloughs for non-exempt or hourly employees

Non-exempt employees are most often hourly workers. If someone is paid hourly, their employer can reduce their hours to put them on furlough without terminating them.

For example, an employee who regularly works 20 hours a week could temporarily have their working schedule cut to only 10 hours. Alternatively, they could be given no hours, also known as a zero-hour schedule. If an employee is on a zero-hour schedule, they are still considered an employee but aren’t given any specific shifts, and are paid only for hours worked.

A zero-hour schedule can be used to avoid laying people off and rehiring them once the business is back on its feet.

Furloughs for exempt or salaried employees

Exempt employees are your salaried workers. Salaried employees are usually paid the same amount no matter how much they work. When they are furloughed, you can temporarily reduce their hours and pay for a set amount of time.

When you put salaried employees on furlough, don’t expect them to still work or take the occasional call—it’s illegal. Employees cannot work at all while they are furloughed. Even something as small as sending an email could require you to pay that employee for the full day.

What is a layoff?

A layoff is a termination of employment based on a lack of available work or funds. Employees who are laid off are let go through no fault of their own and are typically eligible for unemployment.

Getting laid off means employees no longer receive any benefits from the company—however, the layoff process may mean they can continue to use group health benefits from your company health plan. This can happen if the individual agrees to cover the entire premium under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

If you are able, you may choose to offer your laid-off employees a layoff severance package. This can help them transition to a new job, but you aren’t legally required to do so.

3 common types of layoffs

Not every layoff is the same. Here are three common types of layoff process:

Traditional layoff

A layoff is simply an involuntary separation from employment. Common reasons for layoffs include changing economic conditions, budget reductions, or operational changes. They aren’t always permanent, either—the company may reach out to rehire an employee when conditions allow.

Reduction in force (RIF)

A reduction in force (RIF) happens when companies eliminate positions and employees are no longer needed. Unlike traditional layoffs, a RIF layoff is permanent from the start. It's usually preceded by a drastic change in the company, such as a subsidiary closing, change in business direction and strategy, or serious budget reform.

Mass layoffs

Mass layoffs occur when a corporation lays off many employees at the same time. This type of layoff process is usually implemented to quickly “right the ship” when a business loses money or falls below expectations.

In some cases, employees may be invited back to be a part of the company’s transition, as occurred when Meta and Salesforce rehired laid-off employees to support their artificial intelligence (AI) innovations.

How should HR handle a furlough vs. layoff?

As with all things in HR, you should clearly communicate whatever decision you make with your employees when weighing up furlough vs. layoffs.

3 tips to introduce a furlough policy

1. Help employees plan ahead

If you’re able, give your employees a timeline for when things are likely to return to normal. Help them understand furlough pay and whether they will be able to claim furlough unemployment benefits.

2. Clarify work restrictions

Be sure to confirm that employees fully understand that a furlough policy means they can’t work at all for the duration—not even to respond to a quick message. Any hours a non-exempt employee works will have to be paid, and if an exempt employee works at all, they’ll have to be paid the full day’s wage.

3. Consider turning off system access

If a furlough policy is in place for an extended period, you may want to turn off employee access to their business email and accounts to be sure they follow the no-work.

6 tips on how to handle layoffs

If you have to make the difficult choice of laying off employees, understanding how to handle layoffs is essential.

1. Review all pertinent federal and state laws

In particular, you should review the Worker Adjustment and Retraining Notification (WARN) Act regulations, the Older Workers Benefit Protection Act (OWBPA) regulations, and any state laws to be sure you’re compliant.

It’s wise to work with your legal counsel so you don’t miss any federal or state requirements.

2. Provide a severance package (if you can)

Layoff severance can significantly ease employees’ financial burden as they search for new opportunities. It can also leave former employees with a more positive view of your organization. However, as previously stated, it isn’t federally required.

Your severance package may include things like:

• Salary continuation
• Vacation pay
• Continued benefits for a period of time
• Placement service
• Counseling and resume workshops.

3. Conduct layoff sessions with clear communication

This will likely be uncomfortable for both you and the employee, so come prepared. If you can, provide them with clear reasons for layoffs and reassure them that it is through no fault of their own. Providing your employee with as many resources as possible can help keep things positive and professional.

Aim to give employees information about:

• How they can apply for unemployment benefits
• How they can access COBRA benefits
• Their layoff severance package, if it is being provided
• The company’s employee assistance program, if you have one.

4. Inform your remaining staff

Rumors can travel quickly in the workplace. It’s best to get ahead of them by explaining the company’s situation to your remaining staff, what the reasons for layoffs are, and what your action plan is for financial recovery.

5. Assist laid-off workers

Losing a job is particularly challenging during a recession or periods of high inflation, compounded by other uncertainties. HR can support laid-off employees by showing empathy and respect, listening to their concerns, and helping them feel confident about finding new employment.

Be transparent and provide as much notice as possible. Offer support such as resume and interview coaching, letters of recommendation, and networking opportunities.

Address common questions proactively throughout the layoff process, including details about their last day, final paycheck, unused PTO, layoff severance packages, and healthcare coverage. Kindness and assurance that their situation isn’t performance-related can also help soften the blow.

6. Provide ongoing support for remaining employees

Remaining employees may feel shocked, overwhelmed, and worried about future layoffs. Maintaining open, two-way communication is crucial. Listen to their concerns and gather feedback to foster trust, compassion, stability, and hope.

Employees need honest information about the current situation and future expectations. HR can facilitate this by helping leaders communicate directly with employees through various meetings and platforms, ensuring that all employees, whether in-person, remote, or hybrid, are included.