Furloughs vs. Layoffs: What Are the Practical and Legal Differences?

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In 2023, layoffs hit the tech sector hard. The year's first two months alone saw more than 120,000 job losses at major companies including Amazon, Google, and Microsoft.

It's a stark reminder that unfortunately, no company is immune to financial hardship. An economic downturn or something completely out of left field—like the coronavirus pandemic—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 differences between furloughs vs. layoffs so you can make the right decision when the time comes.

No matter what your business is going through, BambooHR® is here to support your team. If you're facing the difficult prospect of saying goodbye to employees, our Employee Offboarding Software will help you give employees a dignified and respectful exit. Learn more.

Furlough vs Layoff: What's the Difference?

Let’s be clear from the start: a furlough is not the same as a layoff. Put simply:

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 have to make hard choices.

Understanding the advantages and differences between a furlough and layoff will help you to make the right choices. It will also equip you with the knowledge to ensure your business survives, whilst dealing with your employees as fairly as possible.

What Is a Furlough?

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

The goal of a furlough is to reduce business costs while keeping your employees in a job. This is done either as a way to divert funds elsewhere or to avoid critical spending during a period of closure (like a pandemic).

While employees do not receive pay during a furlough, they do often get to keep their benefits – such as health and life insurance and, in most cases, can apply for unemployment. 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.

Advantages of Furloughs

Disadvantages of Furloughs

● Employees generally get to keep their benefits.

● Your company reduces short-term costs while also avoiding costly hiring and training processes once the situation stabilizes.

● Employees will be able to collect unemployment in some situations.

● Your company continues to pay expenses for employee benefits.

● Employees are left in limbo—and with no guarantee that their jobs will return, some will find other employment.

● Employees aren’t always able to collect unemployment to cover lost pay.

How Long Can A Company Furlough An Employee?

The amount of time for which you can furlough an employee varies and will depend on the final situation of your business. However, bear in mind that furloughs are supposed to be a temporary solution, and shouldn’t 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 are not given any shifts or pay.

This zero-hour schedule was a commonly used tactic by many businesses, like restaurants and retail stores, during the pandemic. Rather than going through the painful process of laying off their staff and rehiring them when things reopened, businesses could keep people on and start reassigning hours as soon as restrictions were lifted.

Furloughs for Exempt or Salaried Employees

Exempt employees are your salaried workers. Reducing hours doesn’t make sense for salaried employees because they’re paid the same amount no matter how much they work.
Instead, when salaried employees are furloughed, you can temporarily reduce their pay or give them a zero-hour schedule for a set amount of time. This can range from as long as several months to one week a month, or even a few days.

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.

» Learn More: Discover the Best Employee Offboarding Software

Employees no longer receive any benefits from the company – however, 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 severance package. This can help them transition to a new job, but you are not legally required to do so.

Advantages of Layoffs

Disadvantages of Layoffs

● Your company doesn’t have to continue paying for benefits

● Employees can begin searching for their next job without the false hope your organization will take them back.

● Hiring and training new employees is costly

● Your company incurs unemployment costs

● Your company may lose institutional knowledge

● It can be harder to “bounce back” or return to full strength.

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 deciding between them being furloughed or laid off.

How to Handle a Furlough

In the case of a furlough, if you’re able to, give your employees a timeline for when things are likely to return to normal. Be sure to confirm that employees fully understand that they cannot work at all while they are furloughed – not even to respond to a quick Slack chat message!

Any hours a non-exempt employee works will have to be paid and, if an exempt employee works at all, they will have to be paid the full day’s wage. If a furlough is in place for an extended period, you may want to turn off employee access to their business email and accounts to be sure this rule is followed.

How to Handle Layoffs

If you have to make the difficult choice to lay off employees, here are the steps you should take.

No one wants to see a good employee leave, whether temporarily or permanently. The best thing you can do is clearly communicate your choices and work towards having a strategic plan for getting your business back on top.

Always say goodbye on good terms.

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Furlough vs. Layoff: FAQs

Is furlough the same as being laid off?

No, being furloughed is not the same as being laid off. Furlough is a temporary pause on working for a certain time. Employees can’t legally work when on furlough, not even to answer an email. Being laid off is when an employee leaves a business permanently as a result of a company decision.

Can someone be laid off without pay?

Yes, there is no requirement for severance pay (payment given when laid off). It’s an agreement between employer and employee. If the business does give severance pay, the amount will usually be based on how long an employee has been with the company.

Is being laid off the same as being fired?

No, being laid off is at no fault of the employee. Laying off staff is usually done when the business is closing, for cost reduction, or when the employee’s role is no longer needed. Being fired is usually done when the employee is at fault, such as in cases of poor performance.