Furlough Vs. Layoff

Understanding Furloughs

A furlough is temporary. It is a strategy that companies use to protect their bottom line by reducing costs without losing employees. In a furlough:

• A company can reduce the working hours of its non-exempt employees.
• A company can temporarily reduce the pay of its exempt employees.
• A company can put its employees on a zero-hour schedule, whether non-exempt or exempt.

For example, suppose you have a new project that requires additional funds but doesn’t have an additional source of revenue. In that case, you can furlough your employees, divert their salaries to the project, and then put them back on the payroll once the project is complete.

Notwithstanding, specific laws govern furloughs that any business must follow. For instance, furloughs are not supposed to last more than a year. It is also illegal for employees to work (no matter how small the task might seem) when furloughed.

Any task given, including replying to an email, is grounds for payment. Moreover, a furlough will exempt you from paying employee salaries, but it keeps you liable for paying their employee benefits, like life insurance and health insurance.

These laws might differ from one state to another but are still consequential for your business and employees if not adhered to. This has a double-edged effect on your organization and employees:

1. While you save on salary expenses, your employees lose their primary income. Your employees can also collect unemployment benefits, which are not always guaranteed.
2. Because a furlough is temporary, you don’t entirely lose your employees since you can hire them back once your situation is stable. However, keeping them in limbo without guaranteeing you’ll take them back might push them to find employment elsewhere.

With that in mind, laying off your employees or opting for a reduction in force might be a better option if the furlough progresses for a long time. So before settling for a furlough:

• Determine the positions and individuals that will be affected
• Determine the best communication strategy to use when sharing your decision with your employees
• Determine the timeline for your furlough

And when you choose a furlough, ensure you communicate with your employees beforehand and offer a plausible timeline for things to return to normal. Address the implications of the furlough, like ensuring that the employee does not work.

Let your employees know that they will keep their benefits. In cases where working hours are reduced because of the furlough, some employees might become ineligible for certain employee benefits.

And if they are eligible for unemployment, let them know and guide them on how to file for unemployment.

Understanding Layoffs

Layoffs, on the other hand, are permanent. It happens when companies have no work or funds to keep operations as they are. Employees, in this case, should have no fault, making them eligible for unemployment.

But unlike furloughs, employees don’t receive employee benefits even though they can maintain their group health benefits from the company health care plan if they cover their premium costs.

Still, companies can offer their employees a severance package to help them transition into new employment. So with layoffs, the organization saves costs on benefits and gives its employees the freedom to start looking for alternative employment immediately.

On the flip side, the company loses skilled workers, incurs unemployment costs, and carries the burden of training new and possibly unskilled workers when it gets back on its feet.

However, some companies, like seasonal companies, have been known to conduct temporary layoffs that take about 6 months. Here, companies will lay off employees (albeit permanently) but hire them back once the new season begins.

So, if layoffs are inevitable for your organization:

1. Assess your state and federal regulations where layoffs are concerned to ensure you remain compliant. Look for regulations like the Older Workers Benefit Protection Act and the Worker Adjustment and Retraining Notification Act.
2. Consider offering your employees a severance package. While the law does not mandate it, it shows your outgoing and remaining employees that you care for their well-being. You don’t have to be glamorous; you can offer a one-time payment or continued benefits for a period. Some companies provide placement services and counseling sessions to help former employees cope with losing work.
3. Let employees know that layoffs are underway. Be honest, clear, and concise. Help them file for unemployment and COBRA benefits if they are eligible. And let them know when they will get their severance package and how they can access your assistance programs.
4. Explain why the layoffs happened to help your remaining employees have peace of mind. Then reassure them that work will continue as usual.

What About Reduction In Force (RIF)

Unlike furloughs and layoffs, reduction in force constitutes the permanent removal of positions. So, in some respects, layoffs will turn into a reduction in force if the business doesn’t pick up. One thing to remember is that a reduction in force comes with a negative connotation.

In most cases, RIFs have unplanned but expected errors that leave a bad taste in the remaining employees. For example, when a company considers certain positions redundant and requires that they go, the remaining employees will feel unsafe.

And even if the company allows the leaving employees to resign willingly or take early retirement, the remaining employees will still feel unmotivated. On the other hand, RIFs can be suitable for organizations because they eliminate redundancy, streamline operations, and save on costs.



Nonetheless, a reduction in force is a last resort for businesses. And if it is your chosen option, ensure you know your laws and regulations, communicate with employees, avoid disparate impact, and consider offering a severance package to your employees.

So, To Furlough Or To Layoff?

Now that the difference between a furlough and being laid off is clear, the question remains, which option is better for your business? The answer is never genuinely particular but can be determined based on the impact of the choice.

For instance, seasonal businesses are better off with furloughs than layoffs. Companies that are restructuring can opt for layoffs instead of furloughs. The bottom line is that the choice boils down to business needs in the present and future.

Whether you choose to furlough, layoff, or RIF, let us, Zupnick & Associates, help you prepare the right severance package and employee benefits.