Furlough or Layoff: Understanding the Difference
Right now, the verbiage “furlough” and “layoff” are being used so often that they are causing confusion and fear for employees. Companies are wondering when to furlough employees versus laying them off and the differences of each. We are going to share the differences between furloughs and layoffs and explain some of the pros and cons of each.
Companies that want to retain their employees during a period where the employees are not working or getting paid is called a furlough period. Typically this is a period that is communicated to the employees and is temporary. Employees are not paid, but can continue to receive their benefits during this time. Employees are also eligible for unemployment assistance (during COVID-19) and can also work for another business during the furlough period.
Layoffs are not temporary and employees are permanently fired. Employees are not eligible for benefits and can receive unemployment assistance.
Pros and Cons of Furloughs
Furloughs can seem like a good option for businesses that are going to resume regular work at the end of the temporary period of no work.
- Furloughed employees can be brought back on at the end of the temporary period and you will not have to find a new workforce.
- Furloughed employees are still eligible for benefits through the company and may be an added expense you cant afford.
- Furloughed employees can have reduced hours to allow for everyone to still be receiving a paycheck instead of just a few of full time employees.
- Furloughed employees can use their paid time off, which reduces the ability to reduce spending for the company, but provides employees a source of income.
- Furloughed employees may be upset with the company upon returning and reduce their productivity as an result.
Pros and Cons of Layoffs
While saving money right now can seem like an enticing option, laying off employees might not be the best option, especially if you have just received the PPP loan and are using that for payroll purposes.
- If you layoff your workforce, you will have to find, rehire and onboard those employees again when your business picks back up.
- Layoffs can free up a large amount of cash relatively quickly.
- Layoffs allow you to create a new workforce from scratch, if you are wanting to change your company culture.
- Layoffs allow you to find and hire new workers at a later date that may not have been available previously during a hiring crisis.
How to Proceed
Whether to layoff or furlough your workforce, you can be selective in how you move forward. You can layoff part of your workforce and furlough others, depending on your needs and the needs of your business when you return back to work. Knowing what to do really lies at the heart of what you need to do as a business owner to keep the doors open.
Either way, clear and honest communication is key throughout this entire process. Letting your employees know the layoffs or furlough is not their fault or a result of their productivity is important. If you are furloughing your workforce, establish a clear expectation of when you are evaluating their return or expect them to be back with the company. Maintain your communication with them throughout this time, whether checking on them and their family, providing updates and generally letting them know you care. This will help with either hiring them back or welcoming them back at the end of the furlough process.
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