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Recent years have seen their share of layoffs, which has been especially hard on the tech sector. At major companies such as Google, Amazon, Microsoft, Yahoo, Meta, and Zoom, tens of thousands of workers lost their jobs. The startup sector was not spared either, with announcements of cuts across all verticals, from crypto to enterprise SaaS.

This wave of layoffs shows that no company is exempt from financial hardship. An economic downturn or other unexpected event can put your business in the difficult position of guiding employees through furloughs or layoffs.

What is the difference between furlough and layoff? A company's long-term plans, the severity of its financial situation, and the impact on employee morale all contribute to whether to furlough or lay off your employees. When deciding between furloughs and layoffs, understanding their differences helps you make an informed choice. Here is more.

What Is a Furlough?

Furloughs are temporary, unpaid leaves of absence, restructured hours, or pay cuts. Employers use this strategy to keep employees while preserving the company's profit margins. Using a furlough reduces your business's costs while keeping your employees employed.

Furloughed employees don't receive pay but retain their benefits, such as health and life insurance. They can also apply for unemployment benefits. Depending on your state, furloughing employees is governed by different laws, so consulting legal counsel before creating a furlough plan is important.

Workers are generally classified into two categories, which can impact how furloughed employees are paid. Classifications include:

  • Exempt employees don't earn overtime pay because they work for a salary.
  • Nonexempt employees work over 40 hours a week and are entitled to minimum wage and overtime pay.

How Does a Furlough Work?

An employer's circumstances determine how long the furlough will last. For example, a retail store damaged by fire would undergo a long-term furlough. But it may only take a week or two of mandatory unpaid time off for you to furlough employees to meet budgetary allocations.

Funding shortages may lead to government shutdown furloughs, where government agencies pause their operations during this time. These furloughs last until funds are released by the legislature.

In addition to complying with the Department of Labor (DOL), Equal Employment Opportunity (EEOC), and Fair Labor Standards Act (FLSA) requirements, employers must follow specific other state and federal laws during a furlough. Among the essential requirements are:

  • Discrimination: Race, national origin, gender, age, sex, religion, disability, or genetic information should not be used as reasons to furlough employees.

  • Hours worked: Employers must pay their full weekly salary regardless of how many hours furlough-exempt employees work during a week. Generally, nonexempt employees are only paid for the hours they work when furloughed.

  • Minimum pay: Exempt and nonexempt employees can have their salaries reduced during a furlough, but they cannot have their salaries reduced below minimum wage.
!

Do furloughed employees get unemployment? In general, furloughed employees are entitled to state unemployment benefits to the full extent of their eligibility. Depending on the total reduction in hours worked, employees still employed but have had their hours cut may qualify for unemployment benefits.

Pros and Cons of a Furlough

Pros Cons
Employees may retain their benefits. You continue to pay for employee benefits.
The company reduces short-term costs while avoiding costly hiring and training processes. Employees may find other jobs.
Sometimes, employees can collect unemployment benefits. Unemployment benefits don't always cover lost wages for employees.

What Is Layoff?

A layoff is removing a position from the workforce. This might occur when a business closes down for financial reasons. If a company does not plan to replace the employees laid off and operates with a reduced staff, a layoff may become a reduction in force.

Quote block: A layoff means the employee is eligible for unemployment benefits and can no longer access employer-sponsored benefits. It is assumed that layoffs are permanent. Consequently, layoffs can be more challenging and costly for companies since hiring to replace employees requires more time and effort.

Employees may receive a severance package depending on the terms of their layoff, which may include extended healthcare benefits or additional weeks of pay. Moreover, U.S. Code Chapter 23, Worker Adjustment and Retraining Notification mandates that employers give 60 days' notice to employees, states, and localities when about to conduct mass layoffs.

How Does a Layoff Work?

Layoffs are more straightforward because the employer will let go of the employee completely. In most cases, laid-off workers qualify for unemployment benefits since they were terminated without fault of their own.

The company no longer provides employee benefits, but your company's health plan still offers group health benefits. The individual must cover the entire cost under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

Pros And Cons of a Layoff

Pros Cons
Employers may not have to continue paying benefits. It becomes expensive to hire and train new employees.
The employee can begin looking for another job without having false hope that the organization will rehire them. Employers incur unemployment costs.
Institutional knowledge of the company is lost.
"Bounce back" and returning to full operations can be challenging.

Choosing Between a Furlough and a Layoff

What is the difference between a furlough and a layoff? Here is a table to help you make the right choice.

Description Furlough Layoff
Definition Unpaid temporary leave Leaving the organization permanently
Status at Work Employer retains employee status The employee is no longer employed
Duration It can last from a few weeks to a few months It is permanent or indefinite
Compensation salary is not paid or reduced Unemployment benefits and/or severance pay
Benefits Retain most benefits (healthcare, etc.) Reduction or termination of benefits is possible
Work Recall the employee is expected to return to work No return to the same role is expected
Employees Morale It may be less negative The negative impact is more severe
Administrative challenges The process is relatively simpler Complicated legal and HR processes

Whatever is the best choice for the company, the owners need to make sure they are familiar with their state’s employment termination laws in order to comply with them.

Helpful Resources:

PeopleHum - What is the Fair Labor Standards Act?

29 USC Ch. 23 - Worker Adjustment And Retraining Notification

U.S. Department of Labor - Continuation of Health Coverage (COBRA)

FAQ About Layoffs and Furloughs

  • What is the difference between a layoff and being fired?

    Layoffs and firings differ by fault. You are fired because of something the company perceives as your fault. Layoffs mean that the company is at fault.

  • How long can a company furlough an employee?

    Furloughs can last for a week or several months and are intended to be temporary.

  • What is the difference between a furlough and being fired?

    The company still employs furloughed employees, but they are not being paid. Getting fired means losing the job and benefits.

  • Can a furlough turn into a layoff?

    Furloughs are meant to be temporary, but they can become a layoff if the employer does not achieve the expected turnaround.

Recent years have seen their share of layoffs, which has been especially hard on the tech sector. At major companies such as Google, Amazon, Microsoft, Yahoo, Meta, and Zoom, tens of thousands of workers lost their jobs. The startup sector was not spared either, with announcements of cuts across all verticals, from crypto to enterprise SaaS.

This wave of layoffs shows that no company is exempt from financial hardship. An economic downturn or other unexpected event can put your business in the difficult position of guiding employees through furloughs or layoffs.

What is the difference between furlough and layoff? A company's long-term plans, the severity of its financial situation, and the impact on employee morale all contribute to whether to furlough or lay off your employees. When deciding between furloughs and layoffs, understanding their differences helps you make an informed choice. Here is more.

What Is a Furlough?

Furloughs are temporary, unpaid leaves of absence, restructured hours, or pay cuts. Employers use this strategy to keep employees while preserving the company's profit margins. Using a furlough reduces your business's costs while keeping your employees employed.

Furloughed employees don't receive pay but retain their benefits, such as health and life insurance. They can also apply for unemployment benefits. Depending on your state, furloughing employees is governed by different laws, so consulting legal counsel before creating a furlough plan is important.

Workers are generally classified into two categories, which can impact how furloughed employees are paid. Classifications include:

  • Exempt employees don't earn overtime pay because they work for a salary.
  • Nonexempt employees work over 40 hours a week and are entitled to minimum wage and overtime pay.

How Does a Furlough Work?

An employer's circumstances determine how long the furlough will last. For example, a retail store damaged by fire would undergo a long-term furlough. But it may only take a week or two of mandatory unpaid time off for you to furlough employees to meet budgetary allocations.

Funding shortages may lead to government shutdown furloughs, where government agencies pause their operations during this time. These furloughs last until funds are released by the legislature.

In addition to complying with the Department of Labor (DOL), Equal Employment Opportunity (EEOC), and Fair Labor Standards Act (FLSA) requirements, employers must follow specific other state and federal laws during a furlough. Among the essential requirements are:

  • Discrimination: Race, national origin, gender, age, sex, religion, disability, or genetic information should not be used as reasons to furlough employees.

  • Hours worked: Employers must pay their full weekly salary regardless of how many hours furlough-exempt employees work during a week. Generally, nonexempt employees are only paid for the hours they work when furloughed.

  • Minimum pay: Exempt and nonexempt employees can have their salaries reduced during a furlough, but they cannot have their salaries reduced below minimum wage.
!

Do furloughed employees get unemployment? In general, furloughed employees are entitled to state unemployment benefits to the full extent of their eligibility. Depending on the total reduction in hours worked, employees still employed but have had their hours cut may qualify for unemployment benefits.

Pros and Cons of a Furlough

Pros Cons
Employees may retain their benefits. You continue to pay for employee benefits.
The company reduces short-term costs while avoiding costly hiring and training processes. Employees may find other jobs.
Sometimes, employees can collect unemployment benefits. Unemployment benefits don't always cover lost wages for employees.

What Is Layoff?

A layoff is removing a position from the workforce. This might occur when a business closes down for financial reasons. If a company does not plan to replace the employees laid off and operates with a reduced staff, a layoff may become a reduction in force.

Quote block: A layoff means the employee is eligible for unemployment benefits and can no longer access employer-sponsored benefits. It is assumed that layoffs are permanent. Consequently, layoffs can be more challenging and costly for companies since hiring to replace employees requires more time and effort.

Employees may receive a severance package depending on the terms of their layoff, which may include extended healthcare benefits or additional weeks of pay. Moreover, U.S. Code Chapter 23, Worker Adjustment and Retraining Notification mandates that employers give 60 days' notice to employees, states, and localities when about to conduct mass layoffs.

How Does a Layoff Work?

Layoffs are more straightforward because the employer will let go of the employee completely. In most cases, laid-off workers qualify for unemployment benefits since they were terminated without fault of their own.

The company no longer provides employee benefits, but your company's health plan still offers group health benefits. The individual must cover the entire cost under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

Pros And Cons of a Layoff

Pros Cons
Employers may not have to continue paying benefits. It becomes expensive to hire and train new employees.
The employee can begin looking for another job without having false hope that the organization will rehire them. Employers incur unemployment costs.
Institutional knowledge of the company is lost.
"Bounce back" and returning to full operations can be challenging.

Choosing Between a Furlough and a Layoff

What is the difference between a furlough and a layoff? Here is a table to help you make the right choice.

Description Furlough Layoff
Definition Unpaid temporary leave Leaving the organization permanently
Status at Work Employer retains employee status The employee is no longer employed
Duration It can last from a few weeks to a few months It is permanent or indefinite
Compensation salary is not paid or reduced Unemployment benefits and/or severance pay
Benefits Retain most benefits (healthcare, etc.) Reduction or termination of benefits is possible
Work Recall the employee is expected to return to work No return to the same role is expected
Employees Morale It may be less negative The negative impact is more severe
Administrative challenges The process is relatively simpler Complicated legal and HR processes

Whatever is the best choice for the company, the owners need to make sure they are familiar with their state’s employment termination laws in order to comply with them.

Helpful Resources:

PeopleHum - What is the Fair Labor Standards Act?

29 USC Ch. 23 - Worker Adjustment And Retraining Notification

U.S. Department of Labor - Continuation of Health Coverage (COBRA)

FAQ About Layoffs and Furloughs

  • What is the difference between a layoff and being fired?

    Layoffs and firings differ by fault. You are fired because of something the company perceives as your fault. Layoffs mean that the company is at fault.

  • How long can a company furlough an employee?

    Furloughs can last for a week or several months and are intended to be temporary.

  • What is the difference between a furlough and being fired?

    The company still employs furloughed employees, but they are not being paid. Getting fired means losing the job and benefits.

  • Can a furlough turn into a layoff?

    Furloughs are meant to be temporary, but they can become a layoff if the employer does not achieve the expected turnaround.