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Furlough vs. Layoff: What's the Difference?

Tonya Fletcher SPHR, SHRM-SCP
by Tonya Fletcher SPHR, SHRM-SCP on May 1, 2020

The economic fallout caused by the COVID-19 pandemic has had a devastating impact on the job market, resulting in over 30 million Americans filing for unemployment since President Trump declared a national state of emergency in March.

To stay afloat, companies must cut spending, often reducing payroll costs as one of the measures they decide to implement. Millions of employees have either been laid off or furloughed and forced to navigate the rules of unemployment. But, what's the difference between a furlough and a layoff?

What is a layoff?

The term "layoff" is likely the most familiar of the two. Simply put, it is when an employee is dismissed from a company and let go from their position. This dismissal is usually intended to be permanent.

Layoffs may occur if sales drop or if an economic event negatively impacts the company, like the one we're experiencing due to the coronavirus.

What happens when an employee is laid off?

When an employee is laid off from their job, they no longer are employed by the company. This also means they lose company benefits.  

In some cases, a company may offer a severance package to an employee after employment ceases, to alleviate some of the financial burdens of being laid off. Employers could even pay for the employee's health insurance for a period of time. Covered employers must offer COBRA Insurance so employees can continue with their own coverage. Extended benefits and aid, like a severance package, can help employees face the uncertain aftermath of being let go.

In some instances, a company may offer a laid-off employee a severance package in exchange for something else. For example, the employee may have to sign a non-disclosure agreement or a signed release, stating they won't sue the company. In this case, the employee does not get the severance if they do not agree to the requirements for the severance package.

Can employees file for unemployment if they are laid off?

Yes. If laid off, they are eligible to file for unemployment benefits. However, it is important to be mindful of state unemployment laws, as accepting a severance package may affect unemployment benefits.

Do laid-off employees have their jobs once their company is back on its feet?

With a layoff, simply put, no. Today the term layoff is used to indicate a permanent dismissal. Therefore, the employer would have to rehire the former employee.

What is a furlough?

Like a layoff, a furlough typically happens when a company makes cost cuts. Unlike a layoff, when employees are furloughed, they are still employed by the employer. Companies will often opt to furlough employees instead of laying them off to save on rehiring in the future.

What happens when employees are furloughed?

What happens when employees are furloughed depends on whether they are classified as exempt or non-exempt per the Fair Labor Standards Act (FLSA).

Non-Exempt Employees

When it comes to non-exempt employees, there are two things that can happen when being furloughed: Hours are eliminated entirely or reduced.

Hours Eliminated: When a company closes down until further notice and does not have the means to pay employees, nor the need for them to work, they may completely eliminate employees' work hours. With the current coronavirus pandemic, we see this happening in many sectors, including hospitality and restaurants. Employees that are furloughed are still employed but are not scheduled for any hours.

Hours Reduced: For some furloughed employees, their hours may be cut compared to what they used to work. Those with reduced work hours will, therefore, make less money, but they will still be employed. Depending on the organization, furloughed employees with reduced hours may need to take a look at their company's benefits to see if the change in hours impacts their eligibility.

Exempt Employees

Similar to non-exempt employees, there are two outcomes exempt employees may face if they are furloughed: No work or a pay cut.

No Work: Like non-exempt employees' "no hours-schedule," an exempt employee may be told they must stop working. An exempt employee whose exempt status requires that they are paid on a salary basis must get at least $684 per week unless they do not perform any work during that workweek. In fact, an employee with no work may have their access to email and work platforms completely revoked, because legally, if they work, they must be paid.

Pay Cut: Under certain circumstances, an exempt employee's salary can be reduced, but in order to be defensible, it should be on a fixed basis.

Can employees file for unemployment if they're furloughed?

Depending on state laws and types of furlough, they may be eligible to file for unemployment. When being furloughed, they should check with their employer regarding health insurance benefits. As furloughed employees, they may continue to have access to the company health insurance plan.

Do furloughed employees have their jobs once their company is back on its feet?

Yes. As a furloughed employee, regardless of whether they've received a pay cut or are on a no-work schedule, they are still employed by the company. Companies' intent when furloughing their employees is to retain their staff and reduce the need for spending to rehire when they are able to return to normal business operations.

The current coronavirus pandemic has thrown the entire world for a loop, with small and medium-sized businesses taking a massive financial hit. Millions of Americans are in the same boat, trying to navigate a world of job losses, attempting to understand their changed employment status, their rights and assistance eligibility, and doing all that they can to regain balance on shaky ground.

Tonya Fletcher SPHR, SHRM-SCP
Tonya Fletcher SPHR, SHRM-SCP

Tonya is the Labor Compliance Manager at FrankCrum. In this role, she leads the FrankAdvice team of HR consultants and manages the delivery and content of best practice HR information to client owners and managers. When she’s not at work, Tonya enjoys international travel.