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.K., furlough arrangements are governed by employment laws and individual or collective agreements rather than a specific national law. The Coronavirus Job Retention Scheme (CJRS), introduced during the COVID-19 pandemic, provided financial support but has since ended.
Employers considering furlough must ensure compliance with employment laws, including adhering to notice requirements, consulting employees where necessary, addressing any consultation obligations, and respecting contractual terms. Before implementing a furlough, it's crucial that employers understand and follow these regulations.
Furlough Durations:
The length of a furlough will depend 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 more significant economic disruptions. If furlough periods are extended, it's best practice for an employer to communicate their reasonings.
Notice Requirements:
Although there is no specific legal notice period for furlough in the U.K., employers must act in accordance with employment contracts and consult with employees or their representatives if contractual terms are being altered, including the start and end date of furlough.
Additionally, notices are generally provided in writing, and employees should be provided time to ask questions and communicate their concerns.
Employee Benefits:
During a furlough period, employers are not required to pay employees their usual wages or benefits unless specified in their employment contract or through a collective agreement. However, employers can choose to provide some benefits, such as health insurance and pension fund contributions, to help boost morale.
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.
