Blog Articles

Furlough vs. Layoffs

What is furlough vs. layoff, and which one makes more sense for your company

April 13th, 2020


An Easy Guide to Common Questions About Furloughs and Layoffs

Updated: May 14, 2020

Due to COVID-19, many businesses are suffering from economic setbacks and turning to temporary terminations and furloughs to be able to stay afloat. Additionally, nearly one-fifth of US adults have lost their jobs or been shifted to reduced hours -- many of which are expected to return. A large majority of the impacted population sit in the low-income brackets.

While language such as "temporary layoff" and "reduced work hours" are standard in some industries, one of the most significant challenges for many SMBs and HR professionals has been implementing these policies, and communicating what they mean to their employees. 

Here's an easy guide on the difference between furlough and layoff, and the implications they can have for HR professionals, businesses, and employees. 

What does furlough mean?

A furlough is an alternative measure to layoff or employment termination, where companies either reduce employees' work hours or give them a certain period of unpaid leave. 

Under furlough, employees are technically still employed, and the company intends to bring them back to their usual working hours after the leave period is over.

By implementing a furlough, employers have the liberty to set specific terms, such as whether employees can keep their benefits, how many days it will last, and whether it will be a complete company furlough or will only apply to specific employees or departments.

For instance, under furlough, a company might:

  • Reduce work hours to 25 per week during the specified period; or  

  • Place everyone in the company to a 3-week unpaid leave; or

  • Reduce work hours for essential departments, and place an unpaid leave for nonessential ones.

As an HR professional, you must draft a document to communicate these terms clearly. Especially if they only apply to certain employees and not others. Explain the none-discriminatory business reasons behind the terms, and make sure there isn't room for misinterpretation.

Moreover, since the employees are still part of the company, there is no need to pay out any accrued PTO, and it's under the company's discretion allowing employees to use their PTO during the furlough.

What does layoff mean?

Simply put, a layoff means you are terminating your worker's employment either temporarily or permanently. 

Temporary layoffs can happen if your company closes down entirely for several days, weeks, etc., but plans to reopen in the future. You can terminate employment temporarily, and notify workers that they could be rehired in the future. However, contrary to furloughed workers, laid-off employees are not guaranteed to be rehired. 

Permanent layoffs happen when you terminate a workers' employment, and rehiring isn't an option. Some of the causes of permanent layoffs can be business close down, reduction of force, or employee performance.   

Laying off employees also means — in some states—that the business must pay out any accrued Paid Time Off. So we suggest that you review your state's laws in regards to laid-off employees and business responsibilities to stay compliant.

Just like with furloughs, it is the responsibility of HR to create a document and officially announce the termination news to the affected employees. We understand that having these conversations isn't easy, especially during these difficult times, but clear communication is essential to maintain good relationships between business and employees.   

Can furloughed employees apply for unemployment compensations?

Any employee that has been laid-off or furloughed due to COVID-19 is eligible and encouraged by the DOL, to receive unemployment benefits under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

Eligible individuals will also receive an additional $600 in federal benefits per week under the Federal Pandemic Unemployment Compensation (FPUC) program, from now through July 31st, 2020. Likewise, the DOL will be flexible with eligibility requirements to "actively seek work," if COVID-19 affects their ability to do so.   

Are employers required to offer benefits to furloughed employees?

Eligibility for benefits during furlough will depend on two factors: 

  1. The employer's willingness to keep employees in their benefit plans — And it's under the company's discretion to continue contributing to these benefits, or to ask the employee to cover the contributions during this time.

  2. Whether the benefits provider itself allows furloughed employees to stay in the plan — As some benefit plans specifically disqualify furloughed employees from being covered.

However, according to the GoCo HR Support Center, if employees lose their health coverage, the federal Consolidated Omnibus Budget Reconciliation Act (COBRA), or state "Mini-COBRA" laws could apply.

Are furloughed or temporarily laid-off employees still eligible for FFCRA Leaves?

If employees are furloughed or temporarily laid-off, they are not entitled to the FFCRA Leave benefits. When a company closes, it's usually due to lack of business and work for the employees to do, so in this case, employees can apply for unemployment benefits, but not for paid or unpaid leave.

Additional Notes

If you're currently deciding whether a furlough or a layoff makes more sense for your company, we encourage you to research your state laws and make sure you stay in compliance with any decision you make.

Also, as SMBs weigh their options, make sure your HR team gives a human perspective to business decisions, so employees also feel supported in the process.

If you need help crafting your company's documents for employees to review and sign, with GoCo, you can create any policy, as a MagicDoc, automatically to send it out to team members, and require employees to digitally acknowledge and sign it.

For more information on how GoCo can support you and your team through COVID-19, you can go here, or schedule a call with a GoCo expert for customized help.

The GoCo team is working hard to support HR pros through COVID-19. Visit our COVID-19 Resource Center for more tools and tips 💚

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