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 the U.S., furloughs are regulated by a combination of federal laws, such as the Fair Labor Standards Act (FLSA), and state-level employment laws. For instance, under the FLSA, employees must typically be furloughed for full workweeks to avoid triggering pay obligations.
Before announcing a furlough, it's crucial to ensure compliance with labor laws, including adhering to notice periods and correctly handling exempt and non-exempt employees. Research state-specific laws that may require advanced notice or precise treatment of benefits during the furlough period.
Furlough Durations & Severance Pay:
There is no federally mandated maximum period for furloughs in the U.S., although state laws may impose restrictions. Generally, employers can furlough employees for an indefinite period, provided they follow the state's laws, and furloughs can be extended or shortened based on the company's needs.
Shorter furloughs, such as a few days or weeks, may be used to navigate temporary shutdowns, while longer furloughs are often necessary during major economic disruptions. If a furlough results in a permanent lay-off, severance pay is usually not required unless mandated by the employment contract or offered voluntarily by the employer.
Notice Requirements:
In the U.S., furloughs do not typically require advance notices, though this can vary by state or based on the employee's contract. However, under the Worker Adjustment and Retraining Notification (WARN) Act, employees must receive a 60-day notice of the impending furlough if it affects 100 or more employees for more than six months.
Employee Benefit Requirements:
Unless specified by company policy, an employment contract, or applicable state laws, employers are not legally required to provide benefits to furloughed employees. During this time, employers often voluntarily choose to provide health insurance and other benefits, as this helps improve morale and retain employees.
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.
