What is Furlough vs. Layoff?
Furloughs and layoffs differ primarily in their long-term implications. Layoffs are permanent suspensions of employees, generally the result of subpar job performance. In contrast to furloughs, which are often temporary and related to corporate restructuring.
Employees on furlough are eventually anticipated to return to their jobs and would typically retain their benefits. Employees who are laid off forfeit their benefits, and they will receive a termination due date.
Benefits of Furlough:
Furlough allows businesses to temporarily reduce labor costs while retaining their workforce for future projects. This also helps save employers the expense of layoffs and rehiring later. By preserving their skilled workforce, employers can quickly restart operations when conditions improve, avoiding the time and costs of retraining newcomers.
While announcing furlough may cause employees to feel unsure about their jobs, employees often retain their benefits, such as health insurance, which can help foster loyalty and morale. Before announcing furlough, employers must determine how long the business can sustain a furlough and have a contingency plan in place if it needs to be extended.
Reasons for Furlough:
1. Economic downtime: A significant drop in economic demand can lead to businesses scaling back their operations.
2. Financial difficulties: Businesses experiencing cash flow issues or financial instability may implement furloughs to manage expenses.
3. Seasonal downturn: Industries with seasonal demand may furlough employees during off-peak periods.
4. Operational restructuring: Businesses undergoing restructuring or reorganization may furlough employees while adjusting operations.
5. Pandemic or crisis: Unforeseen events like pandemics or natural disasters can disrupt normal operations, leading to temporary furlough.
Things to Consider:
Regulatory Framework:
In Australia, furloughs, or "stand downs," are governed by the Fair Work Act 2009, which states that employers can only place workers on furlough in specific circumstances, such as lack of work, during natural disasters, or under government orders. The furlough must comply with the policies outlined in relevant awards or enterprise agreements.
Furlough Durations & Redundancy Pay:
The Fair Work Act does not list a minimum or maximum duration period for furlough to remain compliant. However, prolonged furlough periods can lead to a breakdown of relationships between employers and employees, particularly if those employees find their roles slipping into redundancy during this uncertain time.
Should a stand down become permanent, perhaps due to the business closing down or the workforce being significantly cut down, employees may find themselves entitled to redundancy pay. This will depend on each employee's length of service and the terms outlined in their awards or enterprise agreements.
Notice Requirements:
Although there is no legislative requirement regarding notice periods in Australia, employers are encouraged to provide employees with as much notice as possible. Doing so fosters trust and transparency, which are important factors to consider during such sensitive situations.
As a best practice, notify all employees in writing about the upcoming furlough and clearly outline the reasons for the decision, the duration of the furlough, any implications for their employment, and the available communication channels.
Employment Benefits:
During furlough, employees' benefits may be impacted. For instance, employees do not accrue leave during stand-down periods. However, depending on employees' awards and enterprise agreements, employers may still be held liable for other benefits.
In Australia, employers are still required to make superannuation contributions to employees' retirement funds if they are receiving any type of pay. Additionally, employees may be eligible for government support programs, such as JobSeeker Payments, which provide financial aid during downtime or unemployment periods.
The Impact of Furlough:
Transparency is key during a furlough period — clearly explaining the reasons behind the decision and sharing a communication plan will help maintain your employees' trust. It's also important to consider how furlough might affect morale and productivity upon their return, so take time to plan how you'll reintroduce the team and rebuild confidence.
