Furloughs vs. Layoffs: Understanding the Key Differences and Making the Right Decision
August 29, 2018 by Josh Hrala
Reduction events can take many forms, with the most widely used being a permanent RIF (reduction in force), but there are more temporary approaches, too, such as layoffs or furloughs.
But when it comes to choosing which will work best for your organization, you need to understand the basics and how each event will impact not only your bottom line, but also your employer brand, existing talent, and your ability to recall workers if needed. So this begs the question: furloughs vs layoffs, which to choose?
Before we jump in, though, it’s important that – no matter what event you go with – you work closely with your legal team during any RIF event to ensure you follow all local, state, and federal laws. We are not lawyers!
Here’s what we’ll cover today:
- Furloughs Vs Layoffs: Understanding the Differences
- What Is a Furlough?
- What Is a Layoff?
- Commonly Asked Questions About Layoffs and Furloughs
- Is It Better to be Furloughed or Laid off?
- Why Would a Company Layoff Instead of Furlough Staff?
- Is a Furlough the Same as Being Laid Off or Fired?
- Layoffs Vs Furloughs: How to Make the Right Choice
- Consider the Customization of Both
- The Impact on Your Employer Brand
- Layoffs and Furloughs: The Pros and Cons
- Pros and Cons of Layoffs
- Pros and Cons of Furloughs
- Layoffs Vs Furloughs: The Takeaways
FURLOUGHS VS LAYOFFS: UNDERSTANDING THE DIFFERENCES
Despite how they may be used in everyday conversation, there are major differences between layoffs and furloughs that need to be understood in order for you to make the right decision. For even more information, check out our complete guides to layoffs and furloughs to gain a thorough understanding of each.
However, for our purposes today, here is a brief recap to help us define layoffs and furloughs.
What Is a Furlough?
A furlough is a temporary, unpaid leave of absence granted to employees by their employers. It typically occurs during times of economic downturn or when a company faces financial constraints. During a furlough, employees are still considered to be employed by the company but are not actively working and do not receive their regular wages, but oftentimes continue to receive their benefits.
While we often think of furloughs as a way to reduce staffing, they’re also commonly used for seasonal businesses. For example, an ice cream parlor may furlough its staff during the winter, but those employees will still have their jobs as soon as summer comes around. In short, furloughed workers are not terminated; they are placed on an unpaid leave of absence for a specific period of time.
What Is a Layoff?
A layoff is a more permanent type of reduction where employment is fully terminated, meaning that those impacted stop receiving wages and benefits. Layoffs also typically involve severance packages and outplacement services to help employees find new roles and mitigate legal action.
There are a myriad of reasons for a layoff to occur, from economic downturn to restructuring to mergers and acquisitions. As we mentioned, layoffs are typically permanent, but employees can be recalled if the situation changes; however, there’s no guarantee employees will be available or even wish to return.
Summary: The Difference Between Layoffs and Furloughs
While it can be easy to define furloughs and layoffs, understanding their key differences is a must. Here’s a brief rundown:
- Furloughs are always temporary. Layoffs are temporary but usually become permanent.
- Furloughed workers do not receive wages, but they typically retain their benefits. Laid off workers are completely offboarded and receive neither.
- Layoffs typically include offboarding benefits, including a severance agreement and outplacement services. Furloughs do not.
COMMONLY ASKED QUESTIONS ABOUT LAYOFFS AND FURLOUGHS
Before we move into helping you understand which type of reduction is best for your situation, it’s important to answer a few common questions that you—or your staff—may have if you should implement a furlough or a layoff.
These questions often include:
Is It Better to be Furloughed or Laid Off?
Whether it is better to be laid off or furloughed depends on individual circumstances and preferences for employees.
In general, being furloughed can offer some advantages over being laid off. While furloughed, employees often retain their benefits, such as healthcare, and may be eligible for unemployment benefits.
On the other hand, a layoff may provide immediate access to unemployment benefits and the freedom to immediately seek new employment opportunities, but it involves a complete separation from the company and the potential loss of benefits.
Why Would a Company Layoff Instead of Furlough Staff?
This question is rather complicated because the decision to choose either must be carefully weighed before any action is taken. With that in mind, a company may choose to layoff workers instead of furlough them if they need to permanently reduce their workforce immediately to reduce costs, restructure teams, and eliminate redundancies.
The cost-saving portion of a layoff is the key here. If a company furloughs workers, they often still have to pay out benefits, which can be costly. With a layoff, the complete separation of employees can help reduce costs even further.
Is a Furlough the Same as Being Laid Off or Fired?
The short answer is no; being furloughed is quite different from being laid off or fired. A furlough is a temporary, unpaid leave of absence where a worker typically retains their benefits and is still employed.
A layoff is a more permanent reduction where employment is completely terminated. While workers can get recalled from a layoff, they typically aren’t, allowing them to seek out new employment using outplacement services while also receiving other offboarding benefits.
Being fired, on the other hand, is slightly similar to being laid off as it is a complete termination from the company. However, there is a key difference: being fired is the result of breaking company policy, not meeting goals, or some other action taken by an employee. Layoffs are not triggered by an employee’s direct actions. Learn more about the difference between being fired and laid off with our complete guide.
LAYOFFS VS FURLOUGHS: HOW TO MAKE THE RIGHT CHOICE
Like all events of this nature, you need to look at how your business typically operates before making a decision.
You need to keep in mind that any sudden reduction event (even temporary ones) won’t likely be viewed well by staff or the public. We say “sudden” because, like in the sample above, it makes sense for some businesses to be closed when there isn’t any business to be done, like landscaping, seasonal attractions, and others.
A sudden furlough, where staff members have to go without a paycheck for a specific amount of time, will stress out your workforce and may force some to jump ship to find new work outside of the company. A temporary layoff is the same. Both of these events can make your workers feel unstable and, therefore, leave permanently.
But what should you consider when it comes to choosing between events?
There is no golden rule of thumb that works out for everyone. A layoff may work out the best if you aren’t sure if you’ll be able to recall all employees. Providing them with outplacement support, even if the move is temporary, can also calm the waters.
On the other hand, a furlough, where employees know they will have work in a few weeks or days, might be more enticing, keeping your workers around. Again, it comes down to your budget, how your business operates, and the legalities you need to consider.
This is where some serious analysis can come into play. Consider how your customers will view your move, how your staff will feel about it, and how you plan on moving forward after the fact.
Consider the Customization Offered by Both
One of the benefits of using a furlough over a layoff is that you can have a rolling program that doesn’t result in people being out of work for long periods of time.
In short, you could have a furlough that happens every Monday for a set amount of months, saving your business money every week without having staff members completely out of work. You could also have furloughs for two days, three days, or even a longer period of time. Whatever works for you and your business.
A layoff, on the other hand, is more applicable to events that need to be in a lump of days. For example, in your rehire policy, you can say that employees will stay on the recall list for two months. After that time, the layoff is permanent. Layoffs also save more money because it is a full termination with the chance of a recall, meaning that you will not be paying benefits to impacted employees.
Again, both of these moves can push people to leave your organization, but there are times when each can be the right choice over the other.
Impact on Employer Brand
With any reduction event, your brand might take a hit in the public eye, opening up the possibility that you may lose customers or revenue.
Despite those concerns, reduction events are often the last stand to get a business back on track because—let’s face it—no one inside or outside an organization likes when a layoff happens.
Layoffs and RIFs can signal that your business is floundering, even if the move was simply to reduce redundancies or even to pivot to a new product or service. This is why it’s vital to include proper offboarding practices when any reduction event occurs.
We highly suggest using an outplacement provider to help your exiting staff members land on their feet in a new role.
As for furloughs, they can signal the same thing—that your business is struggling—but they more often than not signal that layoffs are coming in the future, making them more impactful internally where employees might read the writing on the wall (even if there is no real ‘writing on the wall’ at all).
For both of these options to work out in the long run, always be as open and transparent as possible. Make sure you monitor how your employer brand is doing with online tools that can help pinpoint how the public is taking the event. We also suggest using anonymous surveys to test how your move is perceived internally, too.
LAYOFFS AND FURLOUGHS: PROS AND CONS
Before we wrap up, let’s take a high-level look at the pros and cons of choosing a layoff or a furlough.
Pros and Cons of Layoffs
Below are some common pros and cons of holding a layoff.
Pros for Choosing a Layoff
- Offer more cost-savings than furloughs.
- Cleanly separate employees from companies.
- Allows organizations to pivot, reduce redundancies, and restructure for growth.
- Typically help employees land on their feet using outplacement services and severance packages.
Cons of Choosing a Layoff
- Potentially damaging to morale and employer brand if handled incorrectly.
- Unlikely to be able to recall impacted employees even if you’d like to.
- May decrease productivity as talent and teams shift around.
Pros and Cons of Furloughs
Below are some common pros and cons of holding a furlough.
Pros for Choosing a Furlough
- Allow you to retain staff and not hire new candidates while also reducing costs.
- Generally less impactful on employees since they can keep benefits and are still employed.
- May be more well-received than a layoff because it shows the company’s willingness to do everything it can before a more permanent reduction measure.
- Greater flexibility to reduce costs than a clean-cut layoff.
Cons for Choosing a Furlough
- May not reduce costs as much as needed.
- Can still have a negative impact on morale and retention.
- Can reduce productivity and lead to more losses if not handled properly with the right talent management.
LAYOFFS VS FURLOUGHS: THE TAKEAWAYS
Both layoffs and furloughs are meant—on paper—to be temporary events. However, layoffs often turn permanent, at least for a good portion of those let go.
Furloughs can offer a bit more flexibility than layoffs, though layoffs are better for longer-term reductions.
At the end of the day, you have to consider what will work for your business, and what will align well with the culture you have created or manage.
And finally, always double and triple check with your legal team to make sure whatever you choose is enforceable and complies with all local, state, and federal laws, especially when letting go workers over the age of 40 or holding a mass layoff event because these situations require extra steps to ensure compliance.
Want to learn more about furloughs and layoffs? Download our guides here:
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