Furlough vs Layoff

You may say that termination is termination, then how can furlough and layoff be distinct from one another? There is a major dissimilarity between these two forms of employee termination. When furlough refers to the dismissal of an employee from the job, for the time being, a layoff is usually a lifetime suspension of any worker from the organization.

The circumstances determine the use of furlough or layoff as a human resource tactic by the organizations. It can be seen as a crisis management strategy adopted by a business entity.

Content: Furlough vs Layoff

Comparison Chart – Difference Between Furlough and Layoff

We are outlining some of the prominent distinctions among these two terms in the following table:

BasisFurloughLayoff
MeaningFurlough is an act of beholding employees from work for a temporary period.A layoff is an adjournment of employees from their duties on a permanent or temporary basis.
Dismissal from JobTemporaryPermanent or Temporary
Return to Work / Job AssuaranceYesNot Necessary
ReasonShortage of funds due to government shutdownsLoss of business resulting in economic crisis
PayoutNoSeverance Package
Health InsuranceYesNo, COBRA
PeriodFew hours, days, weeks or monthsIndefinite
Final PaychequeNot applicable until made compulsory by lawCompulsory
Benefits AccessAccrued paid time off (PTO) allowedAccumulated PTO may be allowed
Unemployment BenefitsDepends upon state lawsYes

Furlough Example

Mr Joseph who has been working as a product engineer in a renowned automobile company for the last 6 years was furloughed for 4 months during the Coronavirus outbreak.

The company was temporarily closed for this period and didn’t have any new projects to work on. Later, he was called back on the job while he managed his expenses from the employment benefits he claimed.

Layoff Example

Mr Joseph employed as a product engineer in a famous automobile company since last 6 years was laid off with an additional month’s pay since the company was shut down permanently.

What is a Furlough?

Furlough is the process of adjourning an employee from work for a particular period, after which the person resumes his/her job. A furloughed worker remains an active worker of the company, though he/she is not entitled to receive salary for the furlough period.

Furlough Pay

Any personnel furloughed from the job is not eligible to receive the payment during this period. Although, he/she can relish the other employee benefits offered by the company. Moreover, receiving unemployment benefits is subjected to state laws.

What is a Layoff?

A layoff is an act of ousting an employee from a job position permanently, however, in a few cases, it can be a temporary dismissal. Most often the company has to compensate the laid-off employee with a month’s pay or whatever the person is eligible to receive according to the corporate or state norms.

Layoff Pay

Any employee who has been laid off from the organization is to be compensated with an additional month’s pay or a severance package. Different states have varying layoff norms which are to be followed by the companies.

Furlough Benefits

Furlough is a cost-saving strategy from the organization’s point of view. Let us unfold some of its advantages to the company and the employees:

Furlough Benefits
  • Temporary Period: Instead of termination, in a furlough, the employees are relieved from their duties for an interim period, after which they are called back on work.
  • Active Employment Status: Being furloughed from a job doesn’t mean that an employee has been fired, indeed he/she still considered as a part of the organization.
  • Accrued Paid Off Time: The furloughed employees are entitled to receive accrued paid time off as compensation along with unemployment insurance benefits if any.
  • Job Assurance: Furloughing is considered as a temporary termination which ensures the employee that he/she will be called back to work after a certain period.

Layoff Benefits

When layoff is considered an extreme step by any company, it has various advantages for the organization and the employees which are stated below:

Layoff Benefits
  • Saves Organization’s Reputation: The management saves the company from defaming by straight away terminating the employees permanently, rather than keeping them on hold for a certain period.
  • Cost Cutting: Employee layoff is a shear means of reducing the labour overheads to improve the organization’s financial health in adverse situations. It is also considered as a crisis management tactic.
  • Move On Possibility: The laid-off employees are not stuck in the midway, they can always move ahead with other job opportunities, leaving behind their past association with the company.
  • Severance Package: The employees who are laid off may be entitled to receive different benefits. Such an additional monthly salary, new job search assistance, 403(b) or 401(k) benefits and any compensation for required notice period or leaves allowed.

Furlough Disadvantages

Furloughing an employee is a double-ended sword for any organization. Where on one end the salary expenses can be cut short, on the other hand, a talented resource can be retained.

However, the company experiences several limitations of furlough:

Furlough Disadvantages
  • Exhaustion of Savings: While the employees are temporarily ceased from working in the organization, they are to be compensated for such a period that too from the corporate savings.
  • Demoralizes Employees: The workers feel demotivated when one or some of them are furloughed from the company. This is because they develop insecurity and lack of confidence.
  • Mislaying Finest Talents: On the organization’s part, there is a high risk of losing some of the most talented resources (the ones who are furloughed) since they may shift to any other company.
  • Obstructs Organizational Activities: If someone holds specific skills and that person is furloughed by the management, this may even result in partial work hindrance and organizational setback.
  • Delayed Restart: One of its prominent disadvantages is that the furloughed employee when called back on work, may not respond instantaneously and even getting things back on track takes excessive time.

Layoff Disadvantages

A layoff is a clear step where the employee is expelled from the organization. Here we are going to introduce you to some of the shortcomings of this method of termination:

Layoff Disadvantages
  • Fresh Hiring Cost: Now that the management had almost closed options for the return of laid-off employees, the company needs to spend all over again on new recruitments.
  • Creation of Skill Gap: The new hires may not always be a correct fit for the job position. Also, they may lack certain skills or expertise essential for that particular post.
  • May Face Lawsuits: The worker who has been laid off by the management can even resort to a lawful action against the company, which may result in heavy compensation.
  • Job Insecurity Among Other Employees: Everyone else still working in the organization would get a negative impression of the company’s culture and human resource practices.
  • Difficulty Finding the Right Match: Finding a better or say an equally-competent replacement is a vulnerable task which can engulf a lot of money of the organization and time of the management.
  • Results in Unemployment: The country’s economy is also somewhat affected when many companies adopt the means of a layoff since the rate of unemployment hikes up.

Summary

To encapsulate the above comparison chart, we need to go through the below statements:

Furlough is the dismissal of employees from their job positions for the time being, without harming their employment status. However, a layoff is usually seen as expelling an employee from the company for the lifetime.

In the prior, the employee termination is for a short period, while in the latter it is mostly for lifelong.

While the former promises a definite return to the job, the latter doesn’t comprise any such possibilities.

Furlough is taken as a solution to deal with a temporary crisis such as government shutdowns. On the other hand, a layoff is the last resort to deal with a long-term economic crisis.

The company doesn’t have to provide any compensation to the furloughed employee. Although, a person laid off from the job is liable to receive a severance package.

In the prior, a worker is still covered under the organization’s health insurance policy. However, in the latter, a worker has no such health coverage except for those working in the USA are eligible for the COBRA benefits.

An employee can be furloughed for a few hours, days, weeks or months, while he/she can be laid off for an indefinite period, say for lifelong.

Generally, a furloughed employee doesn’t receive a final paycheque until the company is compelled to do so by the state laws. A laid-off employee is necessarily entitled to receive a final paycheque.

In the former, the individual is handed over a sum in regards to the accrued paid time off (PTO). Whereas, in the latter, the person may or may not be compensated for the accumulated PTO.

A furloughed employee may or may not be entitled to unemployment benefits as prevailed by the respective state laws. Whereas, an employee who is laid off is mostly liable to receive the unemployment benefits.

Furlough and Unemployment

An employee furloughed from the job is not unemployed since he/she is still considered as an organization’s part. Though he/she may or may not receive the unemployment benefits, as per the state norms, the company has to provide the employee benefits to such personnel.

Layoff and Unemployment

Now that a person is laid off from the company, he/she will remain unemployed throughout the period till he/she finds a new job. Most of the state norms allow such individuals to file for unemployment and seek related benefits. Thus, laying off employees on a mass level can shatter the economy as well as peak unemployment in a country.

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