Furlough and layoff are buzzwords and are of the most loathed terms in the world of work. Nevertheless, if the day comes when an organisation needs to reduce its payroll due to financial hardship, they are options that employers must deeply consider to keep the business stable.
But what do the terms mean? Most people tend to use them interchangeably, but that’s an error.
Furlough and layoff do not mean the same thing. Instead, they are distinct in several ways that can affect employees’ jobs, income, and benefits during their unemployment.
This article will shed light on the differences between a furlough and a layoff to aid your decision-making process.
What Is a Furlough?
A furlough is a compulsory leave of absence from which the employee is expected to return to work or be restored from a decreased work schedule.
When you’d temporarily like to cut back on payroll costs, but you don’t want to terminate an employee’s employment permanently, you should consider a furlough.
A furlough may be used to stabilise an organisation during mandated shutdowns and slow seasons while avoiding the severity and finality of a layoff.
Furloughs can be structured according to an organisation’s needs. For instance, employees may be required to take a certain number of unpaid hours off over several weeks or take a single block of unpaid time off.
What Is a Layoff?
On the other hand, when you lay off an employee, you permanently terminate their employment. A reduction in force (RIF) is another term for a layoff.
It is important to note that layoffs have nothing to do with the employee’s job performance. A layoff can also be used when the company wishes to automate many jobs.
Layoffs can be temporary, and employers may choose to recall laid-off employees. However, even when the term “temporary layoff” is used, there are no guarantees that the employee will be re-hired.
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Furlough vs Layoff: What Are the Key Differences?
There are important differences between layoffs and furloughs, and these differences have implications for both you and your employees.
The core difference is that a layoff leads to a permanent loss of work, while a furlough can be considered a leave of absence.
Accordingly, the following are how a furlough differs from a layoff:
● Health Benefits
When workers are laid-off, they lose their health insurance coverage simultaneously. On the other hand, furloughed employees usually retain health coverage for a limited period depending on the arrangement between them and their employer.
● Paid Time Off (PTO) Payout
When paying off laid-off employees, employers are required to pay for any unused PTO they may have accrued in their employment.
With furloughed employees, however, considering that they are not formally separated from the company, there may be no immediate need to pay out their accrued PTO.
Therefore, most employers typically allow their employees to use their PTO during the furlough.
Furlough vs Layoff: Key Factors When Making a Choice
Whether you choose to layoff or furlough your employees is a decision that should be carefully weighed considering the following:
- Does your business require employees with specific skill sets that will be difficult to replace once positions are available?
- Are most of your employees in the early stage of their career? If so, that would allow them to move on more easily.
If you’re wholeheartedly convinced that your company’s situation is temporary and you will be able to call employees back, you may choose to furlough them.
A furlough tells your employees that you place a premium on their abilities. However, when furloughing workers, be sure to suspend their access to internal systems and email during the period.
Engaging them in any work, or if they were to log in for any reason, would negate the furlough. Consequently, you may be required to pay them for their time.
On the flip side, if, regardless of your best effort, your company can’t afford to keep up with the payroll costs of all your employees, and you are uncertain of when things may improve, a layoff is a better option.
What to Know When Bringing Employees Back After Furloughs and Layoffs
When things stabilise and you wish to hire, it’s generally best practice to prioritise bringing former employees back, considering the value of their institutional knowledge.
For more information on how to re-hire laid-off employees, please read our guide on re-hiring former employees in Nigeria.
If your furloughed employees choose not to return to their jobs when you recall them, document the last day they worked, and the last day they were paid. Then, proceed with the standard HR procedure for exiting employees from your company.
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In Conclusion
When times are hard, and it is urgent to reduce payroll costs, it is prudent to choose carefully, thoroughly considering how each choice will affect your organisation now and in the future.
When faced with a furlough vs layoff decision, it takes foresight and depth of expertise to make a decision that will not hurt the organisation in the short-term and long term. A professional employer organization (PEO) can help your organisation navigate these and other challenges.
Explore how Workforce Africa can help your organisation win through furloughs and layoffs even in the hardest times.