The COVID-19 pandemic quickly crashed the world economy, leaving companies of all sizes considering cost-cutting as a way to sustain themselves. In an effort to keep themselves up and running, many organizations around the world are choosing to furlough or lay off their employees. While being “laid off” is a familiar term for most people, many aren’t aware of the ways it differs from a furlough. Let’s go over these two terms.
- Layoffs are when employees are terminated for reasons unrelated to their work performance. In this case, the employee holds no responsibility for their termination (unlike being fired). After being laid off, the worker is no longer an employee of said company, so they lose all of their benefits and protections.
- A furlough is a mandatory (but temporary) leave of absence. Unlike a layoff, the employee is expected to eventually return to work. Furloughs are usually used when employers are running low on funds but don’t want to terminate their employees. Furloughed staff are technically still employees; as such, they retain both their jobs and their benefits.
It’s widely known that laid-off employees can demand unemployment compensation. However, thanks to new federal legislation contained within the CARES Act, furloughed employees may find that they are also eligible for unemployment compensation. When laid-off employees request unemployment benefits, the State requires that they produce evidence proving that they’ve been actively searching for work. Since furloughed employees technically still have jobs, they are exempt from this requirement.
Since furloughed employees are still employed by their company, they maintain their group health coverage. Some companies may pay for the employee contributions; others are asking for workers to repay them when they return to work. Of course, these opportunities are only available to furloughed employees. Since laid-off employees are no longer employed, they aren’t eligible for healthcare benefits provided by a business’s group healthcare plan
Terms of a Furlough
The specific terms and conditions of a furlough will vary from employer to employer. Furloughs generally have a time limit, but they always consist of unpaid time and can reduce the hours, days, or weeks an employee works.
Duration of a Furlough
The length of a furlough will vary depending on the employer. They consider many different factors when deciding the duration of a furlough, such as how to maintain operations with limited (or a lack of) revenue. Furloughs aren’t designed to discriminate against certain employees; rather, furloughs are generally distributed evenly among employees to keep individual hardship to a minimum.
Layoffs may be a great option for companies who want to permanently want to reduce their workforce, but it’s important to consider the repercussions. Rehiring costs, the loss of valuable employees, and low company morale are all common side-effects of company-wide layoffs. On the other hand, furloughs don’t involve permanently dismissing employees, so rehiring costs, loss of employees, and negative effects on company morale will be minimal. Still, the duration of a furlough will have a great effect on the overall effectiveness of this strategy. Employees who are furloughed for a long period of time are much more likely to quit anyway.
If you’re considering a furlough or layoff for your company, it’s important to weigh the pros and cons of each option (for both the company & the employees) before making a decision.