Furlough Vs. Layoff—What’s The Difference?

By: Tina Harris

Within the last ten weeks, more than 40 million U.S. workers have filed for unemployment benefits—the highest level since the great depression. Employers have had to make brutal decisions about their workforce, including whether (and who) to furlough or lay off.

While 77% of workers believe they will return to their jobs, whether or not that happens remains to be seen. The PPP loans many employers were able to get will pay for the eight-week period they intended to cover, and yet, once those funds expire, life (and work) may not be back to normal for the majority of affected businesses. So what level of employment will continue? Will business have picked up enough to continue employment, and what will that look like?

As employers face the U.S. economy’s shuttering, they must deal with the long-term impact; and employers who didn’t previously have to choose between furloughing, cutting pay, or cutting time may have to consider those options moving forward. In this article, we’ll review the difference between a layoff and a furlough, explore the idea of a “temporary layoff,” and provide resources that can help your company face these tough decisions around employment.

Furlough Vs. Layoff: What’s the difference?

The major difference between a layoff and a furlough is that a company has no expectation of rehiring laid-off employees, whereas a furlough is a sign of good faith that an employee will be called back to their job when work or an ability to pay workers returns.

What is a work furlough?

A furlough means maintaining an employee’s active employment status, but not providing them with work hours due to lack of work or funding for a temporary period of time. The intention of a furlough is always to bring the employee back to work when jobs resume or money to pay the employee is available. Facts about furloughs include the following:

• Furloughs are not used for disciplinary reasons. The intention of a furlough is always to bring an employee back; if an employee is having disciplinary issues, the employer should deal with them in a different way.
• Typically, during a furlough at least some benefits are held and kept in place for an employee.
• During a furlough, employers should do their best to set a callback date for workers.
• Due to the employer responsibility for paying benefits during a furlough, we recommend a maximum furlough period of six months. Beyond this amount of time, paying for worker benefits is not a wise financial move.

Do furloughed workers receive benefits?

Yes, most employers continue to extend benefits to furloughed workers. Oftentimes, employers will pay 100% of the benefits premium during a furlough period as a sign of good faith to the furloughed worker.

If employees are still held responsible for paying for their benefits, they can choose to have their benefit deductions accrue; for example, instead of paying their $200 premium during a four-week furlough period, workers may choose to owe $200 to employers when they return to work.

Can a furloughed employee collect unemployment?

Yes, generally an employee can receive unemployment benefits during a time they have reduced hours or are furloughed. Some employers may not realize their employees are eligible for unemployment benefits during furlough; this is not a decision an employer makes, but one determined by the state wherein the employee works. More information about unemployment benefits is available on the Department of Labor website.

Because an employee is still considered active during a furlough, it’s easier for employers to call employees back to work than to rehire, even for a limited amount of hours. However, employers should consider the impact of working, even a limited amount, on unemployment benefits. If an employee works any hours at all, their benefit amount is adjusted. The employer needs to report any amount of work an employee has done to their state’s employment division.

If you call back an hourly employee, you need to pay a minimum amount set by the state. In Massachusetts, an employee returning to work must be paid for a minimum of three hours; in New Hampshire, the minimum is two hours, for example. Each state has a different amount of time. In some states, if you have made an agreement with the employee wherein you provided advance notice, and the work is not mandatory, and only lasts an hour, you do not have to pay them the minimum.

Can you put salaried employees on furlough?

Yes, you can put salaried employees on furlough. This is more complicated in terms of their unemployment benefits.

If you call salaried employees back to work, in most states, you must pay them for a full week’s worth of work. Even one hour of work requires pay for a full week. Be mindful that for furloughed salaried employees in particular, any work done—answering voicemails, checking emails, even doing small tasks from home—means you have reactivated them, and they have to be paid accordingly. For this reason, employers should consider measures to eliminate employee access to work tools for furloughed workers.

Is a furlough policy a good idea?

I do not recommend having a furlough policy that lays out lengths of furloughs, reasoning, etc. Policies like this can blur the line between termination and furlough. If a furlough policy is put into place, it must define the business reasons for an employer opting to lay off instead of opting to furlough employees. This is difficult to do and may not be all-encompassing. While we often think of policies as protecting employers, they do protect employees to an extent as well. For this reason, employers are cautioned to consider the repercussions of a furlough policy that may work against them.

Can furloughed workers access their retirement savings?

In light of COVID-19, additional legislation has come out regarding employees accessing their 401(k) and retirement plans, which they generally do not have access to and which do not allow inservice distributions (in most cases).

Plans can choose whether or not they allow employees a hardship withdrawal distribution at 50% of the vested balance up to $50,000. With COVID-19, the amount able to be withdrawn is doubled (up to 100% or $100,000 of their vested balance). The withdrawal must be for reasons related to COVID-19. This guidance for expanded hardship amounts has been put in place automatically—employers don’t have to amend their plans to allow it.

What is a layoff?

The definition of a layoff is moving an employee from active employment status to terminated status with no expectation they will return to work for the same employer. A layoff is termination for non-performance reasons only, for example, when there is no work available for employees.

• During a layoff, employee benefits are terminated based on whatever criteria is laid out in the organization’s benefit plans.
• Laid-off employees are eligible for unemployment benefits.
• In certain cases, some employers may have an employee assistance plan available that can help laid off employees find new jobs, provide debt counseling, etc.
• If a laid-off employee was eligible to return to an employer, he or she would have to be rehired (versus a furloughed employee simply being called back in).

What is a temporary layoff?

Some employers actively terminate employment for a temporary period of time, with the hope that they will be able to rehire employees. Employers may hope that calling it a “temporary layoff” means the employee will collect unemployment and then return to work for the same employer instead of looking for a different job. However, the main issue with this is that there’s no guarantee on either the employee’s or the employer’s end that the employee will return to work. At best, calling a layoff a “temporary layoff” is a hopeful promise—but it is still a termination of employment.

Who provides health insurance during a layoff?

In most cases, once an employee is terminated, benefits are terminated and the employee is responsible for his or her own insurance. By law, employees covered by benefits during employment must be offered health insurance benefits through COBRA at the time of termination; this is usually at the expense of the employee, but employers may choose to pay for COBRA for a month or two as a gesture of goodwill. (In most cases, however, employers aren’t picking up the tab because they can’t afford to.)

Furlough vs. layoff: Which should you choose?

This difficult decision comes down to personal choice.

If you believe wholeheartedly that your company’s situation is temporary and you will be able to call employees back, you may choose to furlough them. A furlough shows them you have good faith in their ability to work for you again while still preserving their benefits and giving them eligibility for unemployment.

Layoffs are better options when your company can’t afford to keep benefits in place and/or you are uncertain you will be able to bring your employees back. If you really have no idea when or if you’ll be able to return employees to work, calling it a furlough and then moving toward layoffs only causes more frustration for your employees.

The bottom line: Use the furlough option only if you truly believe you can return employees to work in a relatively short (less than six months) period of time.

How can Genesis help you deal with furloughs and layoffs?

Our team of experts is experienced in all areas of the employee lifecycle, including helping our partner companies through this scenario.

• We help gauge the nature of your situation: is it a long-term or short-term situation?
• We help you assess whether or not you can maintain benefits, and forecast the cost of those benefits into the future.
• We walk you through the process of both furloughs and layoffs to give you a better understanding of what choosing one or the other might look like for your company.

As your PEO partner, we can provide some needed perspective. We’ll help you determine what’s best for your unique situation and your company, getting past the face value of “furlough” or “layoff,” so you can make decisions about what’s really best for your employees and your company. Complete this brief form or call us at (781) 272-4900, and we’ll be glad to help you navigate your business into the future.