Ask an HR Pro: What’s the Difference Between a Layoff and a Furlough?

When discussing employee separations, the terms layoff and furlough are sometimes used interchangeably. But if you’re planning to perform one of these at your organization, there are some very important distinctions between them that can affect your separation strategy. Before making any decisions that will impact your business and employees, it’s important to understand what those differences are, so you can know which one is right for you.

In this Ask an HR Pro, Chrisanne Bowden, Senior HR Consultant at iHire, breaks down the two types of separations to help you make an informed decision on which strategy you should use, and move forward afterward.

What Are the Differences Between a Layoff and a Furlough?

“Generally speaking, the main differences between the two are how permanent they are,” Bowden began. “In the case of a furlough, the business plans on recalling the employee at some point and continues to consider them employees, and in fact, may only be reducing hours worked. A layoff is an employment separation that is considered permanent, and employees are removed from their employed status and benefits. A severance package and outplacement services are often offered in this case.”

Let’s take a deeper look at the? two types of employee separation:

• Furlough: a temporary reduction in the workforce for a variety of reasons, such as a natural disaster, a government shutdown, or a recession. When a company furloughs employees, it is usually because it needs to save money. Employees who are furloughed are still considered to be employees of the company, and they may be able to collect unemployment benefits.
• Layoff: a reduction in the workforce, usually due to a decline in business, a merger, or a technological change. When a company lays off employees, it is usually because it no longer needs their services. While usually permanent terminations, there have been some cases where the employees are rehired when business conditions improve.

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How Do I Decide on a Layoff vs. a Furlough?

So, which is right for you? Bowden said it depends on how long you expect the situation to last.

“When making these decisions, organizations really need to first do analysis to determine if the separation is permanent, or if they intend to, at some point, recall the employees,” she advised.

Layoffs are one of the most common solutions employers look to when experiencing a decline in business because they can be a way to cut costs quickly and stay afloat. In most cases, layoffs occur when employers do not have enough work to go around. While a layoff can be a quick fix, it’s not always a straightforward process.

“If considering a layoff, it’s important to keep in mind that a layoff comes with its own costs, such as outplacement services and/or paying severance packages,” Bowden said.

Because a furlough is temporary, it’s often seen as an alternative to layoffs. The individuals are not separated from the organization, so they remain benefited employees. Employers can request that employees work fewer hours or take a specified amount of time off without pay. This can get tricky with exempt employees who are required to work full-time hours under the Fair Labor Standards Act (FLSA) to maintain their exempt status. In this situation, if an organization finds it necessary to furlough employees, exempt employees must be furloughed for the full workweek. If they work even an hour, they must be paid for the entire pay period.

A furlough can be an easier option, without the costs of off-boarding, that gives your employees more confidence that they will have a job to come back to, whereas a layoff can be more uncertain.

How to Rebuild Trust After a Layoff or Furlough

Regardless of the course of action you decide on, there will be lingering doubts among your remaining employees about the stability of your organization. Rebuilding that trust is essential to moving forward successfully.

“It’s important to operate from a place of transparency,” Bowden said. “Be as open and honest with people as you are able and be sure they also have a place to go to with concerns. Communication that is supported by what people actually see happening is key to reestablishing trust.”

You should explain the reasoning behind the layoff or furlough, and if you don’t plan on additional cuts, be sure to let the remaining employees know. You should also make sure they understand why they were selected to stay, and that you want them to stick around.

“But don’t stop there,” Bowden cautioned. “Stay in constant communication as the employees get used to things – answer questions as they come, hold more 1:1 meetings, and keep a pulse on how everyone is feeling. And if you have an Employee Assistance Program, encourage employees to take advantage of it.”

No matter what decision you make, uncertain times create challenges for your employees as well as your organization. Ensure that you are in compliance with local, state, and federal laws, and most importantly remember the “people factor.” Be understanding and empathetic when you deliver the news and be prepared to point your employees to resources (both emotional and financial) to help them bounce back. And for more HR advice, head to our Employer Resource Center.