Furlough Versus Layoff: What’s the Difference?
Facing the possibility of furloughs or layoffs is one of the toughest positions you can find yourself in as a business owner, company leader, or employee. As a business leader, realizing you do not have enough cash flow to make payroll is a devastating blow. And as an employee, learning that you’ll soon be out of a job can be shocking, scary, and even infuriating.
If you’re an employer in this boat, you may be looking at your options and weighing whether to furlough versus lay off employees. If you’re an employee, you’re probably wondering what happens next. To help you navigate this challenging situation, we’ll explain the key differences between furloughs and layoffs, share the pros and cons of each, and discuss what to do if you’ve received news that you’re being furloughed or laid off.
Furlough Versus Layoffs
The terms ‘furlough’ and ‘layoff’ are both used to describe a reduction in staff that is typically related to financial challenges rather than performance issues.
Layoffs are a formal break in the relationship between a company and an employee. The separation usually comes with the expectation of a permanent move—no rehire date is attached.
In furloughs, on the other hand, the relationship between the company and the employee remains intact. It is a stoppage of work for a shorter, fixed amount of time, with the expectation that the employee will return to work at some specified date in the future. For record-keeping purposes, the furloughed workers remain on the books as employees of the company.
Whereas layoffs involve stopping work entirely, furloughs may involve either a complete or partial reduction in hours, like moving from five days of work per week to three. In both furloughs and layoffs, the company ceases to issue paychecks to employees and employees become eligible for unemployment benefits. Also, both come with their own set of legal requirements that are typically governed by the state where your business is located.
While both avenues can help companies get through periods of financial strain, there are advantages and disadvantages to each solution. We will talk about these next.
Furloughs
Advantages
If you are an employer faced with deciding between furloughs versus layoffs, furloughs will generally be the preferable option for both the company and its employees for a number of reasons.
One of the primary furlough benefits is that you retain your existing talent pool. Since you are not severing the professional relationship, it is much easier to resume full productivity if and when that time comes.
Since it is not a termination, you do not need to complete all the paperwork you would if you were firing a worker and rehiring them later. Furthermore, you do not need to go through the onboarding process and invest the training time in bringing new employees up to speed if you can bring back furloughed workers who already know the ropes.
For workers, in addition to the expectation that they will have their jobs back in the future, furloughs generally allow them to keep their health insurance and retirement benefits (note that this will depend on the number of employees and the length of the furlough—check with your plan providers to confirm the details in your specific case).
In a furlough, employers do not have to pay out for unused vacation time or issue a “final paycheck” as you would in the event of a layoff, which can help you keep much-needed cash on hand.
Some would argue that furloughs are also a better option from a public relations perspective. Though the connotation associated with mandatory furloughs is not a great one, it implies that what you are going through is a temporary hardship rather than a permanent setback. This can actually work in your favor if you are working to regain footing among clientele or secure investment funding to help get your operations back on track. Furloughs are generally better accepted among employees, as well.
Disadvantages
One main disadvantage of furloughs is that, in many ways, they put the ball in the employee’s court. While employees can stick around waiting to return to work, not all of them will (or, for that matter, will be in a financial position to do so). This can bring uncertainty about your future staffing situation and your ability to resume business as usual when the furlough period ends.
Furloughs can also have negative impacts on your operations. Reduced staff numbers and work hours can mean jammed customer service channels, longer order fulfillment times, and a loss of client confidence. Similarly, when employees do come back to work, their morale and performance can take a hit.
Finally, there are the unintended implications for employees’ benefits that can sometimes result from furloughs. For example, if you offer employer-sponsored health insurance, your provider will stipulate the number of hours an employee must work to qualify for the plan. If a reduction in hours causes employees to fall beneath this threshold, they may be unexpectedly booted from their coverage. It is a good idea to consult with your insurance provider while formulating your furlough plans so you can let employees know what to expect.
Layoffs
Advantages
The primary advantage of layoffs is the immediate cost savings employers can experience from a reduction in payroll, insurance, and benefits. If you’re in dire financial straits, this cash infusion can be a lifeline to keep the struggling business afloat; keeping a portion of your workforce is arguably more desirable than if you had to fold and lay off your entire staff.
Another financial upside is that layoffs can free up resources for initiatives that may reinvigorate the business, like working with a business consultant, executing creative marketing campaigns, or bringing innovative new people to your leadership team.
Layoffs do not always mean a company is on the brink of financial disaster. In some cases, they are simply the result of a shift in the business—maybe new technology has made a certain role obsolete, or you have decided to phase out an underperforming vertical in favor of a more profitable one. In these cases, layoffs present an opportunity to reorganize the business structure to streamline your operations and improve your margins, which will benefit the business in the long run.
Disadvantages
Layoffs are never an ideal option, and they come with their fair share of downsides.
First and foremost, while they can help lengthen your financial runway, layoffs can result in new expenses like increases to your unemployment insurance payments now and in the future.
There are also severance costs to consider, like paying out unused vacation time if this is part of your company policy. Then there are the costs associated with lost talent, like lagging revenue if you have to lay off part of your sales team or gaps in leadership if you are losing key members of management.
Layoffs can breed major uncertainty and mistrust among the staff you retain. Your top talent may decide to start looking elsewhere for opportunities they view as more secure, which can lead to a spike in resignations. Research has shown that employees report decreased commitment and on-the-job performance after layoffs that affect their colleagues.
Layoffs also come with specific requirements to keep you on the right side of the law. Under the WARN Act, for example, employers conducting layoffs that fall within certain criteria are required to give employees 60 days’ notice of the upcoming changes, which must be provided in a particular way. If an employee has a valid claim of discrimination, harassment, or unlawful termination, a layoff could open you up to potential litigation.
Finally, there are some very real public image concerns associated with layoffs. Investors, for example, view layoffs as a sign that a company is not as strong as they previously perceived, which can further harm stock prices. Customers may lose confidence in the brand, and recruitment teams may face future challenges in attracting new talent.
The bottom line is that both furloughs and layoffs come with their own benefits and consequences, which may not necessarily balance one another out. Deciding on the best course of action requires careful consideration and expert input.
Steps to Take if You’ve Been Furloughed
Get the full story
When news of a furlough breaks, the rumor mill starts spinning. Rather than rely on water cooler conversations for information, get the details from a reliable source like your company’s HR department. Find out when the furlough will begin, how long it’s expected to last, whether it’s a full or partial furlough, and if you’ll retain your benefits during the time you’re not working.
Find out if you qualify for unemployment
The rules vary by state, but generally, furloughed employees are eligible for unemployment benefits during the time they’re not working. If you are, in fact, eligible, you’ll want to file as soon as possible, as it can take several weeks to start receiving benefits.
Evaluate your financial situation
Next, you’ll need to make some big decisions. Will you wait it out and aim to return to work for your current employer, or will you try to find a job elsewhere? A lot will depend on your finances.
Consider how much you may receive in unemployment benefits and whether it’s enough for you to make ends meet temporarily. If not, do you have an emergency fund you can draw from or other sources of financial support, like borrowing from a family member? The answer to these questions will help make your decision clearer.
Consider temporary work
In this market, it’s often easier to find a part-time job than a full-time one, which could work in your favor. Consider a temporary position, gig work like driving for Uber or delivering food, or freelancing in your area of expertise to earn extra money during this time.
Many states have implemented policies to let workers continue receiving unemployment benefits if they take a part-time job after being furloughed or laid off. Be sure to check the rules in your state for this situation.
Keep in touch with your employer
Stay on top of what’s happening with your employer. If it’s a large company or government agency, you can get a lot of information by following the news. If it’s a smaller organization, keep in touch with your manager or HR contact to remain informed of any developments.
Steps to Take if You’ve Been Laid Off
File for unemployment
Unemployment benefits are calculated by week and based on a percentage of your normal earnings. The more you make, the more your benefits will be, up to a certain cap.
File through your state’s unemployment office promptly after learning when your last day of work will be. Fill out the paperwork carefully and be sure it’s complete, as missing or inaccurate information can delay your benefits.
Know the key dates
Ask your HR rep when you’ll get your last paycheck, when your health insurance coverage ends, and how soon you need to file for COBRA (temporary continuation of your health insurance coverage) if you’re eligible.
Save important documents
If you still have access to your work devices, now is the time to download any materials you want to keep, like work samples to use in a portfolio, personal documents you saved to your work computer, or copies of important emails.
Begin job searching
Spend some time reviewing your accomplishments and updating your resume. We have an entire section of our blog dedicated to resumes here.
Let friends, family, and people in your professional circle know you’re in the market for a new job. While sharing that you’ve been laid off can be uncomfortable, your network is one of the best resources to hear about new opportunities.
…Or take some time off
It’s understandable if you’re not ready to jump into job searching right away after being laid off. It’s perfectly acceptable to take some time off to rest, tend to your mental health, and give careful consideration to what you really want to do next.
Lean on trustworthy friends and stay in touch with any colleagues you formed a relationship with, as connecting with others not only boosts your wellbeing but makes it more likely you’ll hear about upcoming opportunities.
Related: I Just Got Laid Off. Now What?
