Furlough versus layoff: The difference amounts to more than just semantics

If the coronavirus has taught us anything, it’s that many things we thought we knew, we didn’t, and many things we thought we were prepared for, we weren’t. In large part, this is simply a result of never having been confronted with certain situations and issues before. When was the last time thousands of employers were simultaneously made to reduce staff for an unknown amount of time? This is unprecedented. 

If, during all of this, the concept of furloughs and layoffs has been mind-boggling for you, trust us, you are not alone! Many employers are facing questions like: What’s the difference between a furlough and a layoff? I’m closing my business, so my employees won’t be working; are they officially furloughed or laid off? Can I call it a temporary layoff?

While we would like to think that the coronavirus and ensuing layoffs will all be behind us by the time this article is published, there’s no guarantee of that. If COVID-19 makes a comeback in the fall (as many experts predict), we may be faced with these issues yet again. So, without further ado, let’s attempt to clear up at least part of the confusion.

What is a furlough or temporary layoff?

Essentially, these are the same. A furlough is a temporary layoff from work (i.e., the employee is on unpaid time off or reduced hours). The term “furlough” is more commonly used within government entities, whereas the term “temporary layoff” is used more in the private sector. Regardless of the terminology, here’s the key to both: the employee remains employed and is expected to return to work after the furlough/temporary layoff. To avoid confusion, it is best to use the term “furlough” when reinstatement is expected, and the term “layoff” when it is not. 

Furloughs are intended to be for a limited duration (a few weeks to a few months) and carry an absolute expectation on the part of both the employer and employee of returning to work. Furloughs make sense when circumstances are thought to be truly temporary in nature. 

Initiating furloughs rather than permanently ending employment helps the employer reduce expenses in the short term, as well as the overall costs associated with firing and hiring (turnover is expensive). 

What is a layoff?

A layoff effectively ends employment permanently, just like a termination. There is not a mutual expectation of reinstatement, and the employee has no recall rights. All benefits at the time of the layoff are terminated. A laid-off individual should seek employment opportunities elsewhere.

Appropriate reasons to use layoffs include: elimination of a position; economic recovery of the business is less certain or completely unknown; the business is overstaffed and needs to reduce overhead. 

Does terminology really matter?

In fact, it does. Someone who remains employed retains all employment rights and privileges. If you offer health insurance, vacation, sick leave, bonuses, and so on, individuals on furlough will not lose these because they continue to be active employees even though they are not currently working. In contrast, an employee whose employment has ended does not maintain these rights and benefits. 

Can a furlough transition into a layoff?

Yes, this can happen by initiation of the employer. In other words, during a furlough, the employer may change plans and initiate a permanent layoff, thus putting a permanent end to employment.

Do guidelines exist on when employees should receive their final check?

Final check rules are dictated by state law. When a layoff occurs, final pay must be distributed as required by law as a result of the employment relationship coming to a permanent close. A furlough lasting longer than is allowable by state law will also trigger final pay rules. For example, in Oregon, a furlough will spark final pay rules when reinstatement back to work will not happen within 35 days. In California, that occurs when reinstatement will not happen within the current pay period (roughly 10 days). 

This is important because final pay rules require payout of all wages through the last day of work, plus applicable paid time off (PTO) benefits such as vacation, PTO, and sick leave. Furthermore, there are specific timelines to follow when issuing the final check. 

Conclusion

This article provides some basic information on furloughs and layoffs without covering nuances such as the impact on unemployment insurance and/or paperwork requirements, which are also essential. The most important thing to understand here is that how you present an employer-mandated reduced-hours or time-off situation matters not only to individual employees, but also in terms of employment compliance.

Rebecca Boartfield is HR compliance consultant and Tim Twigg is president of Bent Ericksen & Associates. For more than 30 years, the company has been a leading authority in human resources and personnel issues, helping dentists successfully deal with ever-changing and complex labor laws. To receive a complimentary copy of the company’s quarterly newsletter or to learn more, call (800) 679-2760 or visit bentericksen.com.