Furlough vs. Layoff: Key Differences

By Laura Dowling, SPHR on May 04, 2022
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furlough vs layoff

The terms furlough and layoff are often used interchangeably. In understanding the nuances and key differences between these two concepts, an employer is in a better position to determine which makes the most sense for their company given the circumstances. 

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Both present ways that an employer can reduce payroll costs, which becomes important when a company is struggling financially or is looking to otherwise downsize. Payroll for some organizations comprises one of the largest portions of the business budget, so it makes sense that in order to save money the company would consider laying off or furloughing employees.

Table of Contents

1.  What is a Furlough?

2.  What is a Layoff?

3.  Important Differences Between Furloughs and Layoffs

4.  Choosing Between Furloughs and Layoffs

What is a Furlough? 

A furlough is a temporary cease of employment, after which an employee is expected to return to their position.   A furlough does not imply that the employee or employees are being terminated. Generally speaking, employee performance will have nothing to do with a furlough.  Furloughs are typically utilized when there is a temporary lack of work or financial hardship for the company.  

The other important thing to note about a furlough is that it can be structured either in terms of a period of time during which an employee will not work, or it could also be a reduction of hours that an employee works. So, for example, a furloughed employee might just have a reduced schedule during a given week.

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What is a Layoff? 

Versus a furlough, a layoff is a more definitive separation of an employee from their position. A layoff implies that the employee or employees are terminated. .  As with a furlough, it generally has nothing to do with employee job performance. A layoff usually means that there is either an ongoing absence of work, or the company simply cannot afford to pay certain employees given its financial position. 

Many employers will elect to provide employees with severance pay, typically based on years of service. This is not required and is not feasible in all scenarios. 

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Important Differences Between Furloughs and Layoffs  

  • Healthcare Benefits 

Given that when an employee is furloughed, they are technically still employed by the company, their benefits will continue to come from their employer. Employees will still be responsible for their portion of the insurance premiums; employers can require employees to pay the premiums while they are furloughed or allow them to go into arrears until they return.  

When an employee is laid off, they will lose healthcare coverage. In this circumstance, they are eligible to continue coverage under a plan like COBRA. Some employers may opt to delay benefits termination if the plan allows for it—though this might not be possible.  

  • Paid Time Off 

A furloughed employee will get to retain their accrued PTO and they may even be able to use it during their period of furlough. However, depending on your company’s situation if allowing employees to take PTO during furlough could prove too much of a financial burden, the employer may have a choice to allow it or not, unless state laws say otherwise. 

When employees are laid off, PTO should be paid out per your policy for terminated employees,     

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Choosing Between Furloughs and Layoffs 

Before determining which course of action to take, it’s important to examine every possible angle. Both furloughs and layoffs can be difficult for employees and the organization as a whole. Consider the following:  

  • What is the likelihood that you will be able to bring back employees in the future? 
  • Financially, which scenario makes the most sense for your company, particularly if you are struggling from an economic standpoint? 

These are all important considerations for any employer considering furloughing or laying off workers. The above just scratches the surface, this can be complex terrain to navigate on your own. Enlisting the help of a PEO can take some of the burdens off of you. Axcet HR Consultants are able to assist you in determining which solution makes the most sense for your business, as well as helping you navigate the relevant laws pertaining to furloughs and layoffs. Call today to schedule your consultation.

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Written by Laura Dowling, SPHR

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