Comparing Furloughs and Layoffs: Practical and Legal Distinctions

In 2023, the tech sector was hit hard by layoffs. In the first two months of the year alone, more than 120,000 jobs were cut at major companies such as Amazon, Google and Microsoft.

It's a stark reminder that, unfortunately, no company is immune to financial hardship. An economic downturn or something completely unforeseen - like the coronavirus pandemic - can put HR managers in the difficult position of managing employees through layoffs or layoffs.

But before you find yourself in this situation, it's important to understand the differences between layoffs and layoffs so you can make the right decision when the time comes.

No matter what your company is going through, IceHrm is here to support your team. If you are faced with the difficult task of saying goodbye to employees, our employee offboarding software will help you give your employees a dignified and respectful farewell.

Furlough vs. Layoff: What's the Difference?

To be clear: a furlough is not the same as a dismissal. Expressed in a simple way:

• A furlough allows employees to keep their jobs during a period of change.
• A dismissal is the termination of an employee's employment for reasons affecting the company.

Whether you need to furlough or lay off employees, both situations can be extremely difficult for employees - especially if they have to live paycheck to paycheck. But when your business is in a bind, you have to make tough decisions.

Understanding the benefits and differences between a furlough and a layoff will help you make the right decisions. It also gives you the knowledge you need to ensure the survival of your company while treating your employees as fairly as possible.

What is a furlough?

A furlough is a temporary, unpaid leave of absence, reduction in working hours or reduction in wages. It is used as a strategy to retain employees while protecting the company's profits.

The goal of a furlough is to reduce business costs while preserving employees' jobs. This is done either to use funds elsewhere or to avoid critical expenses during a shutdown (e.g. a pandemic).

During a downsizing, employees do not receive a salary, but they often retain their benefits - such as health and life insurance - and in most cases can apply for unemployment benefits. Employee furlough laws can vary from state to state, so you should work with your company's legal advisors to ensure you handle the situation appropriately.

Both exempt and non-exempt employees can be furloughed, but the process is different for each group.

Benefits of Furloughs

• Employees generally retain their social benefits.
• Your company will reduce short-term costs while avoiding costly hiring and training processes once the situation stabilizes.
• In some cases, employees may receive unemployment benefits.

Disadvantages of Furloughs

• Your company continues to pay the cost of employee benefits.
• Employees will be left in limbo - and since there is no guarantee they will get their jobs back, some will find other employment.
• Employees cannot always apply for unemployment benefits to cover lost wages.

How long can a company furlough an employee?

How long you can furlough an employee varies and depends on your company's ultimate situation. However, remember that the leave of absence is only intended to be a temporary solution and should not last longer than a year.

If you feel that the leave could last longer than 12 months, a layoff and downsizing may be a better solution.

Work stoppages for permanent or hourly employees

In most cases, permanent employees are employed on an hourly basis. If someone is paid hourly, the employer can reduce their hours without firing them.

For example, an employee who regularly works 20 hours a week could have their working hours temporarily reduced to just 10 hours. Alternatively, he can no longer work any hours, which is also known as a zero-hours schedule. With a zero-hours policy, a worker is still considered an employee, but does not receive shifts or wages.

This zero-hours rule was used by many companies during the pandemic, e.g. Restaurants and retail stores, often used. Instead of laying off staff and rehiring them when they reopened, companies were able to keep employees on staff and reallocate work hours once restrictions were lifted.

Leave of absence for exempt or permanent employees

Exempt employees are your employees. Reducing working hours does not make sense for employees because they receive the same amount regardless of their work performance.
Instead, when employees are furloughed, you can temporarily reduce their pay or place them on a zero-hours schedule for a period of time. This can last for several months, a week per month, or even just a few days.

If you furlough employees, you can't expect them to continue working or answer the occasional phone call - that's illegal. Employees are not allowed to work at all while on leave. Even a small thing like sending an email can result in you having to pay the employee for the entire day.

What is a layoff?

A layoff is a termination of employment due to a lack of available jobs or resources. Laid-off employees are fired through no fault of their own and are usually entitled to unemployment benefits.

Employees will no longer receive benefits from the company - but they can still take advantage of the group benefits of your company health plan. This is possible if the person agrees to cover the entire premium under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

If you are able, you can offer your laid-off employees a severance package. This can make their transition to a new job easier, but is not required by law.

Benefits of Layoffs

• Your company no longer has to pay for social benefits.
• Employees can start looking for a new job without the false hope that your company will hire them again.

Disadvantages of layoffs

• Hiring and training new employees is expensive
• Your company incurs costs due to unemployment
• Your company may lose institutional knowledge
• It may be more difficult to recover or return to full strength.

How should HR handle a furlough or layoff?

As with all things human resources, you should clearly communicate the decision of whether to terminate or furlough to your employees.

How to Deal with a Furlough

If you have the opportunity, you should give your employees a timeline for a return to normality. Make sure your employees know they won't be able to work during the work stoppage - not even to respond to a quick Slack chat message!

All hours that a non-exempt employee works must be paid, and if an exempt employee works at all, they must be paid their full daily wages. If a work stoppage occurs for an extended period of time, consider disabling employees' access to their work email and accounts to ensure compliance with this rule.

How to deal with layoffs

If you have to make the difficult decision to lay off employees, here are the steps you should take.

• Check all relevant federal and state laws. In particular, you should review the Worker Adjustment and Retraining Notification (WARN) Act, the Older Workers Benefit Protection Act (OWBPA), and all state laws to ensure compliance. It is advisable to work with your legal counsel to ensure that you do not overlook any federal or state law requirements.
• If possible, offer a severance package. This can significantly reduce the financial burden on employees when searching for new opportunities. It can also lead to former employees having a more positive image of your company. However, as already mentioned, this is not required by law. Your severance package may include, but is not limited to, the following

              •Continued payment of salary
              •Holiday pay
              •Continued benefits for a specified period of time
              •Mediation service
              •Advice and CV workshops

• Conduct discharge interviews with clear communication. This will most likely be uncomfortable for both you and the employee, so be prepared. If you can, inform him of the reasons for the dismissal and reassure him that it is not his fault. Providing your employee with as much information as possible can help keep the situation positive and professional. For example, provide employees with information about:
  
          •How to apply for unemployment benefits
          •How to claim COBRA benefits
          •Your severance package, if offered
          •The company's assistance program, if you have one.
  
• Inform your other employees. Rumors spread quickly in the workplace. It's best to get ahead of them by explaining to remaining employees the company's situation, why you had to make this decision, and what your plan of action is for financial recovery.

Nobody wants a good employee to leave the company, whether temporarily or permanently. The best thing you can do is to clearly communicate your decisions and work toward a strategic plan to get your business back on track.

Downsizing vs. Layoffs: FAQs

Is a furlough the same as a layoff?

No, "furloughed" is not the same as "sacked". A furlough is a temporary break from work for a specific period of time. Employees are not allowed to work during a furlough, nor are they even allowed to respond to an email. Dismissal occurs when an employee leaves the company permanently due to a company decision.

Can someone be fired without pay?

Yes, there is no entitlement to severance pay (which is paid upon dismissal). This is an agreement between employer and employee. If the company pays severance pay, the amount is usually based on the employee's length of service.

Is a layoff the same as a layoff?

No, the dismissal occurs through no fault of the employee. Layoffs typically occur when the company closes to cut costs or when the employee's role is no longer needed. Dismissal usually occurs when the employee is at fault, e.g. with poor performance.

In challenging times, navigating furloughs and layoffs demands sensitivity and legality. IceHrm offers tools for humane employee transitions.