Choosing Between Furlough vs Layoff: How to Make the Right Decision for Your Business

You may have heard two common terms, "furlough" and "layoff," being thrown around the workplace. These words are like two peas in a pod, often used interchangeably but with different meanings and implications. And most organizations, while facing a financial crisis, have to choose between furloughing or laying off employees. But first, it’s essential to understand the difference between furlough vs layoff, so here’s a breakdown of what they mean. 

What is a furlough?

The meaning of furlough could be stated as a temporary leave of absence granted to an employee due to a lack of work or finance costs. It is a leave of absence without pay. Employees who are furloughed normally keep their jobs; however, furloughing does not imply compensation or the termination of employment. Furloughs can continue for up to six months before an employer decides whether to hire the employee back.
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What is a layoff? 

The meaning of layoff is effectively termed as a termination frequently caused by a lack of available work. When employees are let go, their ties to the company are terminated. While a layoff is a form of employee dismissal, it is usually distinguished from terminating employees for lousy performance or any other cause. Although permanent layoffs can occur due to financial difficulties or economic upheaval (for example, the coronavirus pandemic), temporary layoffs are typical in some industries.

What is the difference between a Furlough vs Layoff?

In a furlough vs layoff situation, there are common factors that are of importance in an organization, some are as follows:

1. Unemployment - Employees who have been furloughed or laid off may often wonder whether they are eligible for unemployment benefits. Thus, to see if they fit the criteria, they must meet the state's criteria for being partially unemployed, meaning they are not working the expected hours. And in most cases, the employee's eligibility could depend on factors like the length of the furlough and layoff, the reasons behind it, and the amount of targets or goals they have met before their layoff or furlough.
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2. Healthcare benefits- In a furlough vs layoff situation, employees are accessible to get healthcare benefits for a certain period of time. However, the employee may be responsible for paying the full premium for the coverage. It's essential to check with your employer to understand their specific policies around health care benefits during a furlough. 

3. Job Assurance- When it comes to job security, we all want to feel reassured that our position is safe. However, in furlough vs layoff, it can be a bit tricky, as job assurance is usually not provided during a furlough and layoff. If you're furloughed, your employer may give you a date when you can expect to resume work once the company's business conditions improve. However, there's no guarantee that your job will still be there when that happens. Similarly, if you're laid off, your employer may indicate their intention to rehire employees in the future, but there still needs to be job assurance for the same.
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4. PTO- Paid Time Off refers to a type of paid leave that employees can take for vacation, medical issues, personal reasons, and other types of absences. When it comes to furlough and layoff, PTO payouts could be offered to laid off employees as part of their severance package. In contrast, in a furlough, employees may be required to use their PTO during the period of unpaid leave, depending on the employer's policy.

Can a Furlough Turn into a Layoff?

The key difference between furlough and layoff is that employers are incentivized to furlough rather than lay off employees if they plan to hire them back. Hiring and training new employees are frequently more expensive and time-consuming than recalling existing employees with familiarity and talents. However, suppose it becomes clear that the bad economic conditions will last for a long time or may even compel dramatic changes in the business's future. In that case, an employer may choose to lay off furloughed employees. Employers are legally entitled to begin layoffs of furloughed staff as long as they are correctly handled.

How do companies choose between furlough vs layoff? 

Due to the economy's current state, it is considerably harder to decide whether to lay off employees or furlough them. In a furlough vs layoff stage, Whether an employee is exempt or non-exempt under the Fair Labor Standards Act (FLSA) determines whether they may be furloughed and under what circumstances. Exempt workers are entitled to their entire wage throughout every workweek in which they complete any labor, as per the Fair Labor Standards Act (FLSA). Non-exempt workers often receive hourly pay and must be reimbursed for every time worked.

While layoffs may be a preferable alternative for companies anticipating a more protracted slump, furloughs may be the preferred option for companies anticipating a speedy recovery in their operations. 

Also read, 10 ways to handle employee termination effectively 

To wrap up, the difference between furlough vs layoff it could be stated that both measures that employers may take in response to economic downturns, business closures, or other unexpected events. However, there are key differences between the two. While both furloughs and layoffs are cost-saving measures, they differ in the way they manage employees’ time and how the employee is treated afterwards. Thus, the meaning of furlough is termed as involving a temporary period of unpaid leave set by the employer, while the meaning of layoff are permanent terminations of employment. Employers should therefore evaluate their situation to determine which option is best for their budget, workforce, and purpose before choosing which to use. In any case, it's critical for employers to explain the rationale behind the choice to their staff members and to offer assistance during the adjustment time.