The ongoing COVID-19 outbreak has many businesses rethinking their operations in the near future. Due to global economic panic and productivity interruptions from the illness, many organizations are faced with downsizing, at least temporarily, in order to weather the storm.
One of the biggest questions for HR and business leaders right now is whether it’s best to lay employees off or furlough them during this tough time. The differences between the two classifications are subtle, but they can mean the world of difference when it comes to benefits and unemployment accessibility.
In this post we’ll:
- Define “layoff” & “furlough”
- Describe the specific differences between the two
- Explore how layoffs & furloughs affect employees & employers differently
What is a Layoff?
Layoffs are employee terminations necessitated by business need. Layoffs are not related to employee performance (compared to being “fired”) but rather the need to streamline operations.
When employees are laid off, their jobs are often eliminated from the organizational depth chart and their responsibilities get assigned to others.
For some layoffs (such as those being necessitated by COVID-19), employers may provide a reassessment window during which the laid-off employee would have the first opportunity to return to their position when/if it becomes feasible from a business standpoint again.
What is a Furlough?
A furlough is a forced worked reduction. Employers inform their teams that there is limited or no work for them for the time being, creating a de facto unpaid vacation. A furlough can apply to company-wide operations or specific teams, departments, etc.
During a furlough, workers are not terminated, but their jobs are effectively put on hold.
What’s the Difference from the Employer’s Perspective?
What Do Layoffs & Furloughs Mean from an HR Function Standpoint?
When you lay an employee off, they must go through your entire offboarding process as dictated by your HR policies and procedures. Furloughing employees requires documentation and clear, written notice, but with the right communication framework and HR tools in place, there’s less work up-front per employee compared to a layoff.
What Do Layoffs & Furloughs Mean from an Employer Branding Standpoint?
Any mass separation event has the potential to disrupt your employee culture and perception in the marketplace, which makes strategy additionally important.
Furloughs send the message that you know you’ve built the right team – it’s just not the right moment to do great work together. When you lay employees off, on the other hand (even in the case of a softer layoff with a reassessment window), you’re essentially telling them that as it stands, their position is no longer viable within your organization.
That doesn’t mean furloughs are always preferable by any means, as stringing workers along for extended periods of time without delivering appropriate updates or adhering to set timetables can also damage your reputation. If your business is in a critical situation and you don’t believe you will be able to offer the same jobs in the future, layoffs may be a better situation.
What FLSA Says About Exempt Workers
The Fair Labor Standards Act dictates that exempt workers (salaried professionals) must be paid their full salary during any week during which they perform any work duties. This means that asking a furloughed executive to take a phone call or check an email can cost you a week of pay or create a potential pay dispute/compliance issue.
Which is Better for Employers: Layoffs of Furloughs?
The honest answer is that neither approach is ideal, and which is the right option will depend on your business’s specific situation and goals.
If you believe you have future business potential but it’s just not the right time to do business in this moment, furloughs can encourage your core employees to stay together and maintain their team spirit as they weather the storm. If you know current events will fundamentally reshape your opportunity to continue work the way you’ve been doing it, layoffs provide a more formal, change-minded approach to business moving forward.
What’s the Difference from the Employee’s Perspective?
How Can Laid Off Employees Support Themselves & Their Families?
When employees are laid off, they can generally continue to receive benefits through COBRA for a set period of time. Once that window ends, though, they need to find a new employer to sponsor them or purchase their own coverage.
Employees that have been laid off are also eligible for unemployment benefits, so there is a safety net in place.
How Can Furloughed Employees Support Themselves & Their Families?
Furloughed employees are entitled to unemployment during the time they are not working. A good best-practice to recommend to all furloughed employees that they apply for unemployment benefits immediately.
Furloughed employees are also entitled to their existing employee benefits through their current stability period as defined by the ACA, but their furloughed status can impact plan eligibility for the next window.
Which is Better for Employees: Layoffs of Furloughs?
Again, there is no single right answer here.
Although it sounds counter-intuitive, layoffs can ultimately be more worker-friendly than furloughs, as they create more direct access to social services. At the same time, however, in a scenario where employees believe they are part of a strong, functional team and are able to survive without pay or the guarantee of unemployment benefits, being furloughed offers the hope of a return to normalcy down the line.
Key Concept: Three Key Differences Between Furloughs and Layoffs
- Furloughed employees have an expectation that they will return to work. Typically, an employer will give furloughed employees either a specific date or a specific condition for resuming duties.
- Furloughed employees typically retain their benefits. That is, employees usually retain access to any health and life insurance during the furlough.
- Laying off employees requires an extensive process of offboarding employees and paying out accrued PTO. Additionally, once needed, re-hiring for those positions can be time intensive. On the other hand, a furlough is more seamless. Furloughed employees can come and go fairly easily with less administrative burden.
With many businesses pondering shutdowns or major operational reductions in the coming weeks, layoffs and furloughs are set to affect an incredible number of professionals around the United States.
As an employer, it’s your responsibility to handle this process in an employee-friendly way that provides an honest vision for each employee’s future and allows them to react and plan in ways that maximize their ability to continue life as normal.
- A layoff is a termination
- Layoffs can be temporary with a built-in reevaluation period
- A furlough is a mandatory work reduction
- Furloughs and layoffs both allow employees to maintain health coverage for a set time
- Furloughing exempt workers like executives is more complex because any work done results in an obligation to pay
- No single approach is right for every situation, it’s all about your company’s goal, your company culture, your belief in your team, and your vision of how you’ll adapt to ongoing challenges
How to Learn More
During this challenging time, Launchways is offering a centralized hub of COVID-19 resources, templates, & policies. Use this bundle to enact your company’s response to the COVID-19 outbreak. The resource bundle includes:
- Sample Emergency Family & Medical Leave Policy
- Sample Emergency Paid Sick Leave Policy
- Essential Business Letter [Template]
- COVID-19 Furlough Letter [Template]
- Sample COVID-19 Communication to Employees
- Telecommuting Agreement & Work From Home Policy
- Telecommuting Checklist
- And many additional resources & templates
GET THE COVID-19 RESOURCE BUNDLE >