Layoff vs. Furlough: What’s the Difference?

May 21, 2020

Layoffs and furloughs may seem like the same thing. Here are some key differences between the two so you will better understand your choices.

Image of an empty chairs in an office conference room, representing a layoff or furlough.

The economy is no stranger to fluctuation.  Sometimes the highs and lows can feel like waves on the ocean, and if we aren’t prepared, it can leave us with a feeling of economic seasickness.  When the economy experiences lows, employers must face tough choices.  Among their decisions, they must decide how they will let employees go.  Specifically, they will need to decide if the times call for a layoff or a furlough.  Still, you might be wondering layoff vs. furlough:  What’s the difference?

So, let’s discuss the differences between the layoff and the furlough.  That way, you will better understand which you need to choose, should you have to make a tough decision.

Reasons Why Companies Layoff, Furlough, or Release Employees

Now, there are many reasons why companies release employees from their employment contract.  In the business world, letting employees go means an employee was terminated.  Terminating employees, while morbid sounding, can actually mean one of several different things.   The following are among the ways an employee can be terminated:

Image of a man, walking with a briefcase, and looking at a white question mark on the wall.
  • firing
  • voluntary resignation
  • departure initiated by the employee
  • layoffs
  • furloughs

When a company fires an employee, it is often because of an infraction on the employee’s part.  Typically this is due to a violation of a code of conduct found within the employee handbook.  Alternatively, it may be due to poor work performance.  When an employee voluntarily resigns, on the other hand, that employee might have found a new job.  Another possible scenario is the employee is leaving for other personal or business reasons.

Layoffs and furloughs, on the other hand, are a little different.  This is because companies often perform layoffs and furloughs due to some kind of crisis within that particular company, within that industry, or perhaps even more widespread.  Layoffs and furloughs are not typically due to an infraction by an employee, nor can an employee initiate them.  Layoffs and furloughs are initiated by the employer, and they end when the employer is in a position to begin to resume business.

Laying Out the Layoff

First, let’s take a look at the layoff.  Many businesses are no stranger to the layoff, although some industries experience layoffs more frequently than others do.     

Now, one of the biggest differences when we consider the layoff vs. furlough is the permanence of the leave.  Specifically, the layoff can be a temporary suspension or a permanent termination.  However, layoffs are more commonly recognized as being permanent.  If the suspension is temporary, though, employees will know that their positions, or a comparable position, are still available to them once business resumes.  If the suspension is permanent, however, employees will have the option to apply for unemployment insurance benefits, or to look for a new job.

Related:  8 Ways to Show Appreciation for Your Employees This Holiday Season

Real World Layoff Scenario

Here I’m going to give you an actual situation that warranted a layoff.  Spending over seven years in the publishing industry, I quickly learned that businesses producing printed content such as books, magazines, and newspapers are near the top of the list of those with frequent layoffs.  The reason is because, over the past couple decades, publishers have seen consumers increasingly turning to digital products.  Although they did their best to pivot and branch out with e-products, sometimes the market forced employee layoffs.  Some layoffs were large, with dozens of people and entire departments let go in a single day.  Other layoffs were smaller, with high-paying or redundant positions finding themselves on the chopping block. The layoffs were the right option, simply because there was no end in sight to the evolving market.

Fleshing Out the Furlough

Next, let’s see how the furlough differs from what we know about the layoff.  Now, while a layoff can be a temporary or permanent suspension, the furlough is largely seen as a temporary suspension.  The thing is, a furlough can be short term, or it can be extended out for a longer period of time.  However, in most cases, the furlough is for a fixed period of time.  Another major factor that differs between a layoff and a furlough is that one way to furlough is to simply be reduce employee work hours.  This way, you will still have the benefit of employee labor, but you can reduce your hours to a number that helps balance the cost of doing business with the economic issues your company is experiencing. 

Now, there are definite advantages of implementing a furlough instead of a layoff.  The biggest reason is if you furlough employees, it gives them a sense of hope that they will still have a job with your company at some point in the future.  Still, during a furlough, employees may look for a temporary job to earn income.  Furthermore, they may also apply for unemployment insurance benefits to offset the loss of income.  So, furloughing employees can give them multiple options for making ends meet until they are fully reinstated.

Real World Furlough Scenario

Sadly, we are currently living a real-life furlough situation.  There is no better time than now to catch a glimpse of how a furlough can be a solution for a pandemic.  For example, the same publishing company that has implemented layoffs over the years wouldn’t necessarily do so in this situation.  The reason is simply that this isn’t a variable only affecting publishing companies, and the hope is that the crisis is finite.  So, when considering layoffs vs. furloughs, furloughing employees will assure them that their jobs are safe for the time being.  Laying off employees, on the other hand, would communicate a much grimmer outlook about the future of the company.  Furthermore, it would require a lot more administrative work to rehire employees after business ramps up again.

Related:  Start Your Engines: New Standard Mileage Rates for 2020

Other Important Considerations for Layoff vs. Furlough

One important thing to know is that a furlough may impact an employee’s eligibility to receive unemployment benefits.  Specifically, the employee’s hours might not be reduced enough to warrant supplemental unemployment payments to make up for the gap. So, employers and employees should review the eligibility requirements for unemployment insurance benefits for their state.

Another thing to remember is that depending on how widespread the crisis is, legislation may provide additional support for employees, whether due to layoffs or furloughs.  For example, the CARES Act has certain components addressing layoffs and furloughs.  Specifically, the CARES Act expands unemployment insurance benefits for employees who are part of layoffs and furloughs due to matters related to COVID-19.

Layoff vs. Furlough, then Back to Business

In summary, we know that the only thing that won’t change with the economy is that it will continue to change.  With that in mind, it’s important to be aware of the options for suspending employees, and we can be informed of our choices by considering the layoff vs. furlough.  Primarily, the layoff is typically a permanent solution to a crisis, while a furlough is expected to be temporary.

While all this talk about suspending employees seems particularly pessimistic, the purpose is to help relieve employers so that they can adjust their sails.  Ultimately, the goal is to perform a layoff or furlough with the purpose of eventually getting back to business with a minimal loss of employees.  So, whichever you choose, perform it in a way that will be as positive as possible, in the case that you end up rehiring employees you’ve let go.

Photo of a man in a suit holding a cell phone and looking out at a city.

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