Furlough vs Layoff: Understanding the Key Differences
With the ebbs and flows of today's business climate, companies might find themselves in tricky spots regarding their team of employees (especially if some kind of downsizing is about to take place).
During those tougher economic/business times, buzzwords like "furlough" and "layoff" might start making their way into the office.
For many people, there's a bit of a haze around what these terms truly mean and what sets them apart. Today, I’m going to talk about the differences between furloughs and layoffs and clarify what each one really means. Let’s begin!
Article Summary
A furlough is a temporary unpaid leave from work. It's a method companies use to trim costs during tricky times. Although furloughed employees don't receive a regular paycheck, they still technically hold their job titles & retain their benefits. Also, it's worth noting that while this leave takes place, some folks may be eligible for unemployment benefits.
Layoffs represent a permanent end of employment. They crop up when a business faces financial hardships or is restructuring. Once laid off, employees lose their ties to the company & their benefits, usually within a set timeframe.
Spotting the differences between furloughs & layoffs hinges on understanding their duration, pay status, benefits, & rehiring possibilities. Furloughs are temporary, retain benefits, & offer a potential return to work. Layoffs, on the other hand, are permanent, end benefits & typically don't lead to rehiring.
Picking between the two options depends on a company's unique situation. While furloughs offer a temporary cost-cutting solution & retain the workforce, they might lead employees to seek employment elsewhere due to uncertainty. Layoffs, although more drastic, might be a necessary move for companies facing longer-term issues, yet can negatively impact the morale of remaining staff.
What is a Furlough?
A furlough is a temporary unpaid leave of absence from work. Employers typically implement it as a way to cut costs during times of economic hardship or unforeseen circumstances.
Employees are still technically employed during leave and maintain their benefits but are not paid their regular salary or wages.
These temporary breaks can last anywhere from a few days to several months, depending on the needs of the business.
One important thing to note is that while employees are not paid during a furlough, they may be eligible for unemployment benefits (look into your local government resources to confirm).
What is a Layoff?
A layoff, on the other hand, is a permanent termination of employment. It is usually implemented when a business faces financial difficulties or restructuring (or when an employee isn’t performing to standards).
When employees are laid off, they are no longer employed by the company and typically lose all their benefits within a certain period, including health insurance and retirement.
Unlike a furlough, it’s unlikely that a laid-off employee will be rehired in the future.
Key Differences Between Furloughs and Layoffs
Now that we understand the basic definitions of furloughs and layoffs let's explore the key differences between the two.
Duration: The primary difference between furloughs and layoffs is the duration. A furlough is a temporary leave of absence, whereas a layoff is a permanent termination of employment.
Pay: During a furlough, employees are not paid their regular salary but may be eligible for unemployment benefits. Laid-off employees do not receive any payment from the company (unless there is severance pay) but should follow up with their local government to review unemployment options.
Benefits: Furloughed employees typically maintain their benefits, such as health insurance and retirement benefits, while on leave. Laid-off employees lose all their benefits and must find alternative coverage within a certain period after being released.
Rehiring: Because a furlough is a temporary leave of absence, employees can expect to be rehired once the period is over. In contrast, the company is not likely to rehire a laid-off employee.
Which is Better: Furlough or Layoff?
There is no easy answer to this question, as it depends on the unique circumstances of each business/organization. Furloughs are often a good option for companies that want to cut costs temporarily without permanently reducing their workforce.
But, furloughed employees may become frustrated with the uncertainty of when they will return to work and may choose to seek other employment.
Layoffs, while more severe, may be necessary for companies that are facing long-term financial difficulties or restructuring. But, laying off employees can hurt morale and may lead to decreased productivity among the remaining staff.
Follow up with your HR or legal team to weigh out all the options before making a decision.
My Two Cents (and experience)
In my experience, choosing between furloughs and layoffs isn't a one size fits all decision, and it really depends on the situation.
But in my opinion (and from personal experience), furloughs are better. They were a great short-term solution for my company, keeping the team together and preserving some kind of happiness during those tough covid times.
I felt like it sent a message that we're all in this together, and we hope to get back on track soon.
I guess the key is really understanding your team and your goals. If you believe in bouncing back quickly, furloughs might be the way to go. If you're looking at a longer-term change, layoffs might be the better choice.
“Change is hard at first, messy in the middle and gorgeous at the end.”
Wrapping Up | Furlough vs Layoff
While these decisions are very tough to mentally and emotionally make, furloughs and layoffs are two ways companies can reduce costs during difficult times.
The summarize the difference, Furloughs are a temporary unpaid leave of absence, while layoffs are a permanent termination of employment. Both options have pros and cons, but it’s up to you to decide how to make these changes.
Best of luck!
We hope this helps with your decision-making but feel free to reach out with any questions! We also have this Outplacement Service Guide that further explains the process after a these take place!
Tags: furlough vs layoff, layoff or furlough, what is the difference between furlough and layoff
Author: Reid Alexander
Disclaimer: This content is for informational purposes only & not intended as professional legal or HR advice. Consult with qualified professionals for advice tailored to your specific situation. The author & publisher disclaim any liability for errors, omissions, or actions taken based on this content.