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The Difference Between Furloughs and Layoffs

iconFurloughs icon3 min read
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Numerous shelter-in-place and quarantine orders have drastically impacted businesses across the globe, forcing many to make hard decisions about their employees. Many employers have laid off workers or reduced employees’ pay or hours to make ends meet. But furloughs offer a mediary option for hard-pressed employers. 

What is a furlough?

A furlough is a leave of absence without pay for a finite period of time. It can be mandatory or voluntary. Workers are furloughed as a way for a business to save money without permanently losing employees. Typically, seasonal businesses will furlough employees during slow seasons. The move allows a business owner to keep employees on file without paying them or having to rehire the same employee. 

The difference between furloughs and layoffs

Furloughs and layoffs are similar in that they both refer to a number of job losses, and are usually the result of financial circumstances. Layoffs are a permanent decision whereas furloughs are temporary. While it is theoretically possible for a laid off employee to become rehired down the road, it’s a rare circumstance. A furloughed employee is told not to come into work for a specific amount of time or is told that they will be brought back on as soon as the business can financially support them again. This way the furloughed employee remains on file. 

How pay and benefits are impacted

A laid off employee will receive a final paycheck for hours worked. Once they’ve been laid off, the employee will no longer receive a paycheck or benefits through their former employer. Furloughed employees will still receive a check for the last hours they worked, but it is not an official last paycheck. Essentially, you can consider a furlough a number of mandatory unpaid days off. 

However, depending on how long an employee is furloughed, it may be considered a triggering event for COBRA purposes if an employee is dropped from a group health plan due to a lack of work hours. This is an important distinction, and you should consult with your health plan and the requirements in your state before you decide to lay off or furlough a large number of your employees.

Furloughs and exempt workers

As a general rule of thumb, employers cannot reduce or cut the pay of exempt employees without the employee losing their exempt status. Therefore if an exempt employee works during any given week, you are still responsible for paying their salary. There is, however, an exception for furloughs during especially difficult financial periods (like those experienced in a global pandemic). Any workweek in which no work is performed by the exempt employee, the employer is not responsible for paying the exempt employee’s salary for said workweek. This is why you should not start a furlough mid-week.

Eligibility for unemployment benefits

Generally, both laid off and furloughed employees are eligible for unemployment benefits if they’ve earned the sufficient amount in wages during the previous year to qualify. Usually there is a waiting period between when a worker is either laid off or furloughed and when they start receiving unemployment benefits. But due to the coronavirus many states have lifted these waiting periods. 

Consider all options before making a decision

Layoffs are a more permanent decision while furloughs usually are a temporary action. Either may be the right choice depending on the nature of your business during COVID-19. Keep in mind that the federal government and many states are offering forms of relief for small businesses during this unprecedented time. If you qualify for a small business loan, you may be able to keep paying your workers until we step out of this ominous cloud. And lastly, it may be time to have a frank conversation with your employees about all the options on the table. Can your business survive if you cut back everyone’s hours? Can you ask certain departments to voluntarily furlough themselves? Normally, having such an open conversation with your entire staff about employment decisions would be unheard of, but we are not in normal times. 

Remember to speak with your legal counsel, a certified HR expert, and/or your benefits provider in order to make an informed decision about your business and your employees. 

Dominion is here to help.

 

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