Furlough or Layoff – which one is it?

While many companies recently had to downsize in response to the COVID-19 pandemic, employees may have been told they were laid off or furloughed. But which term was the appropriate word to use and what are the implications of each?

Layoff

A layoff is when an employee is told there isn’t enough work for them to do and will not be replaced by another employee. While there may be hope that it’s a temporary arrangement, these workers should not expect to return to their position or similar position within the company. In other words, a layoff is more permanent than a furlough.

When should an employer tell an employee they are laid off?

The appropriate time to lay off an employee is when there isn’t enough work for the employee to do, you have no plans to replace the employee, and you’re unsure how long it will be before you have enough work for the position to be warranted. Being laid off has nothing to do with the employee’s performance.

A layoff should never be used as a “gentle” way to terminate an employee for performance or behavior problems. While it theoretically sounds softer, it sends the wrong message to coworkers and allows the employee to collect unemployment benefits when they wouldn’t have been unemployed, had they met performance standards. Be clear and direct in your communication when laying off vs. terminating an employee.

Do workers get to keep their benefits when laid off?

No, employees are unable to maintain their employee benefits unless they qualify for COBRA and pay their entire premium amount, plus an administrative fee for coverage.

Does an individual qualify for unemployment benefits when they are laid off?

Yes, a worker that has been laid off (and not terminated for performance) should qualify for state unemployment benefits.

Furlough

A furlough is a mandatory leave of absence for a temporary period of time (not usually more than a year). The employee expects to return to their same or similar position once the company resumes operations or has sufficient cash flow. Furloughs can happen in any industry and are used as an alternative to terminating employees.

When should an employer tell an employee they are furloughed?

The appropriate time to furlough an employee is when your company needs to save money and/or is experiencing a slow period of business or economic hardship, but you expect to bring back the employee once operations resume. A furlough allows workers to pick up where they left off and you avoid costs involved with recruiting, hiring and training new employees.

Do workers get to keep their benefits when furloughed?

Probably, although benefits may not be guaranteed in all cases. During the COVID-19 pandemic, furloughed workers are able to retain employee benefits.

Does an individual qualify for unemployment when they are furloughed?

Yes, any reduction in pay that is not performance-related should qualify the employee for state unemployment benefits.

For questions about your specific circumstance, please contact our HR experts at HR@stratus.hr.

furlough vs layoff

Furlough or layoff: what’s the difference?