Furlough vs. Laid Off: Key Differences You Need to Know

You may have to make tough staffing decisions when business slows down or unexpected challenges arise. You might hear the terms "furlough" and "laid off" used interchangeably, but they aren’t the same. While furloughs and layoffs are often grouped, they function differently and can lead to different outcomes for both employers and employees. Here’s a breakdown to help you make an informed choice.

What is a Furlough?

A furlough is a temporary, unpaid leave of absence. When you put employees on furlough, they’re still technically employed — they just aren’t working or receiving pay for a set period. Businesses may opt for furloughs to reduce costs without permanently laying off employees. Some examples include:

• A seasonal business might furlough workers during off-peak months when there’s no work available.

• Many companies furloughed staff while pausing operations during the early stages of the COVID-19 pandemic.

What Does Being Laid Off Mean?

When you lay off an employee, your employment relationship comes to a permanent end. Layoffs may happen during reorganizations or cost-cutting efforts. They may also occur when a business closes a location or department. Here are some examples:

• A company eliminates a position due to budget cuts.

• Two companies merge and eliminate duplicate roles.

• A company shuts down an entire division or branch.

Key Differences Between Furloughs and Layoffs

Understanding the difference between being laid off and being furloughed can help you choose the most effective approach and provide better support to your teams. Here's how furloughs and layoffs affect employment status, benefits, and recall rights:

Employment Status

• Furlough: Your employee remains on payroll as an active employee but doesn’t work or receive pay for a specified period. It typically means a temporary pause with the expectation of returning to work.

• Layoff: Your employee’s job ends, as does the employment relationship. They stop receiving regular pay but may be offered severance, depending on company policy or applicable agreements.

Benefits

• Furlough: Your employees may retain some benefits, such as health insurance, if the furlough is short-term. If applicable, employers can communicate available resources, such as employee assistance programs (EAPs), to support employees during this time.

• Layoff: Your employees typically lose benefits when they are terminated, but they may be eligible for COBRA health coverage.

Recall Rights

• Furlough: Your employees have a strong expectation to return to their jobs when the furlough ends.

• Layoff: There is no guaranteed recall, and the position may be permanently eliminated or filled by someone else.

Legal Considerations for Furlough vs. Layoffs

Before deciding on a furlough or layoff, it’s essential to understand the legal requirements and obligations. When in doubt, consult an employment attorney to make sure you stay compliant throughout the process.

Employee Rights

Businesses must comply with federal, state, and local labor laws when planning a furlough or layoff, as requirements can vary for exempt and non-exempt employees.

• Exempt/Salaried Employees: Under wage laws, exempt employees are entitled to receive their full salary for any week in which they perform any work. Because of this, employers usually structure furloughs for exempt workers to cover entire workweeks, with no work allowed during that time.

• Non-Exempt (Hourly) Employees: Hourly (non-exempt) employees can often keep working during a furlough, but with fewer hours or reduced shifts. You can also place these employees on a full furlough for several weeks or even months if needed.

Unemployment Benefits

Both furloughed and laid-off employees may qualify for unemployment benefits, although eligibility varies by state. Laid-off workers typically receive full unemployment benefits. Furloughed employees are still technically employed and may be eligible for partial or full unemployment benefits, depending on their situation and local laws.

Severance and Final Pay

Layoffs may trigger severance pay, as outlined in company policies or state laws. As an employer, you must also provide any owed final wages promptly. Furloughs typically don’t require severance, as employees remain employed and return to work after a specified timeframe.

Legal Notification Requirements

Temporary furloughs may not always require formal notification, especially if they are short-term in duration. Layoffs, especially mass layoffs or plant closings, require advance notice under laws such as the Worker Adjustment and Retraining Notification (WARN) Act.

Which Option is Right for Your Business?

In times of uncertainty, how do you decide between furlough vs. layoff? The decision typically depends on your company's specific circumstances and plans. Here are some factors to consider when making your decision:

• Your company’s financial situation and budget constraints

• The expected length of the slowdown or disruption

• Whether you plan to rehire employees soon

• The necessity of specific roles for the long-term business strategy

• Impact on employee benefits, legal obligations, and associated costs (including severance and unemployment claims)

• Importance of maintaining employee morale and engagement

Regardless of the option you choose, it’s wise to communicate and offer your support to help employees understand their rights and options during these transitions.

How Justworks Helps You Navigate Furloughs and Layoffs

Managing workforce changes is never easy, but having the right tools and guidance can help you handle them with care and compliance. Justworks offers flexible payroll tools and reliable and expert support. We also provide access to modern HRIS systems, simplifying your staffing decisions. Get started with Justworks today to streamline your HR tasks.