Furloughs vs. Layoffs or Force Reductions: What Are the Legal Differences?

What you’ll discover:

What exactly is a furlough?
What exactly is a layoff?
What does force reduction imply?
What is the major difference between laying off and terminating an employee?
How can I choose which choice is best for my company?

While non-essential companies remain closed and consumers stay at home, many firms are forced to make difficult choices in order to make payroll. If you are a company owner or manager seeking to downsize your personnel during the coronavirus epidemic, you must grasp the major legal distinctions between furloughing and laying off workers. These are some often asked questions by employers:

What exactly is a furlough?

A furlough is an unpaid cessation of employment with the intention of returning to work at some time.

When you furlough an employee, you usually give them a date when they may expect to return to work or a condition that must be met before employment can resume. For example, in the instance of the COVID-19 pandemic, you may furlough staff with the idea that they would return to work whenever non-essential firms are permitted to reopen.

Since they are legally still employed by the firm, furloughed workers often keep their employment benefits, including health and life insurance.

What exactly is a layoff?

When you lay off staff, you are also suspending employment but with no intention of returning to work. It is not to say that you cannot call a laid-off person back to work; rather, the individual should not expect to be called back.

Unlike a furloughed employee, a laid-off employee normally does not maintain their benefits. The employer may give severance money (and may be required by contract), but the layoff effectively ends the job relationship.

What does force reduction imply?

A reduction in force is described as a departure from employment owing to a lack of funding, a lack of work, a redesign or removal of position(s), or restructuring, with no possibility or expectation of the person being recalled. An RIF may occur when a firm is reorganized, leading in the removal of employees, or when it seems that the functions allocated to two or more roles are redundant.

What is the major difference between laying off and terminating an employee?

It is critical to distinguish between being laid off and getting fired. The fundamental distinction is that when an employee is laid off, it is considered the employer’s responsibility (even if it is due to circumstances beyond their control), but when an employee is fired, it is considered the individual’s fault.

This difference is important when an employee is looking for new chances. More immediately, it is important if the employee files for unemployment insurance (UI). In most states, a worker is only eligible for UI payments if they are unable to work due to no fault of their own. As a result, laid-off and furloughed employees are usually eligible for unemployment compensation. If the employee was dismissed, such benefits will very certainly be refused.

How can I choose which choice is best for my company?

While selecting which choice is ideal for your case, you should consider the following:

Is it reasonable to anticipate that you will need personnel again in the near future? Furlough is generally your best choice if you regard the situation as transitory and plan to call your staff back shortly. During a furlough, however, there is a rigorous No Work Rule that must not be broken. You must pay a salaried employee’s wage for the whole week if they respond to a single email or sign a single document while furloughed.
How much paperwork is there? In general, the bigger the organization, the more extensive the process of laying off staff is. Often, there are actions to be done and documentation to be completed. A furlough, on the other hand, may involve nothing more than an employer communicating the decision, frequently through a Furlough Letter.
Do you want your workers to keep their benefits? Employees should never lose employer-sponsored health insurance, but losing it amid a global health crisis might be disastrous. A furlough may be the best alternative if you want your workers to keep their health insurance (and other perks).
Are you eligible for government assistance? The Paycheck Protection Program, which is meant to assist firms retain workers during the COVID-19 crisis, is available to the majority of small enterprises with employees. PPP loans are limited to a maximum of $10 million per enterprise. Find out what kind of assistance you could be qualified for.

These are difficult times for companies, as well as families and people, so you should carefully consider your alternatives if you need to drastically reduce spending via layoffs, furloughs, or a reduction in force.