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The difference between a layoff and a furlough is whether the employee still has a job. A furlough is temporary. It can be a cut in hours, reduced pay, or an unpaid leave of absence. A layoff is permanent. Workers are terminated, though for no fault of their own. They are entitled to unemployment, though not any other employment benefits.
What is a furlough?
A furlough is a temporary strategy to reduce a company’s costs while keeping its employees. If you are furloughed, you are still technically employed. However, you may be subjected to a:
- pay cut,
- reduction in hours worked,
- change from full-time to part-time status, or
- leave of absence without pay.
Both exempt and non-exempt employees can be furloughed.
Non-exempt workers are often put on so-called zero-hour schedules. You would still be employed. However, you would not be scheduled to work any hours during the furlough period due to the lack of work.
Exempt employees who have been furloughed cannot be required to work. If you work at all, the Fair Labor Standards Act (FLSA) entitles you to a workweek’s worth of pay.[1] This also means that a furlough for an exempt, salaried employee has to be in weekly increments.
While you may not receive all of your wages – or any of them – you still receive other employee benefits. This can include:
- health insurance, and
- life insurance.
You would also maintain your accumulated paid time off (PTO). Some employers may let you use PTO while furloughed to make some money. This is rare, though, as the point of the furlough is to cut costs.
You may be entitled to unemployment benefits as well.
Furloughs are temporary. However, they may last for months. While a company furlough is a cost-saving strategy for the company, it can leave workers in a predicament. Without work, you may not be making any money. It is not uncommon for furloughed workers to switch jobs while they have been furloughed.
During the coronavirus pandemic and shutdown, many employees were furloughed, especially in the hospitality industry. Companies did this during the economic downturn in order to stop paying wages without having to go through the rehiring process when they opened back up.
What does it mean to be laid off?
A layoff is a permanent, faultless termination of your employment. If you have been laid off, you no longer have a job at your now-former employer.
Generally, you will be entitled to unemployment benefits. You may also be entitled to a payout of your PTO if your state’s laws allow for it. This can cover any of your accumulated:
- vacation time,
- sick time, and
- personal time.
While you are not legally entitled to one, you may also be offered a severance package. This can provide some financial stability. It also may provide job training for a career switch. Severance packages may also provide continued healthcare for several months.
If you do not receive a severance package or it does not include healthcare coverage, you will likely be eligible for continued coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA allows you to keep your employer-provided healthcare coverage. However, you generally have to pay your former employer’s share of the premium. You may also be eligible for health benefits under the Affordable Care Act (ACA), also known as Obamacare. A layoff is generally a qualifying life event that opens a special enrollment period for a new health plan.
In some industries, temporary layoffs are common. In these cases, your employer will lay you off, but with the intention of rehiring you in the near future. This is especially common in seasonal businesses.
When is it a mass layoff?
Under the federal Worker Adjustment and Retraining Notification (WARN) Act, a layoff can become a mass layoff if:
- the employer has at least 100 employees, and
- at least 500 employees are being laid off, or at least 33 percent of the workforce, with a minimum of 50 employees, are being laid off.[2]
Employers conducting a mass layoff must warn their employees and local communities at least 60 days before laying off employees.[3] Employers who do not provide this advance notice and that are not exempted from the Act’s requirements must provide back pay for the period of time during which the warning was not given.[4] New employees may be entitled to reduced benefits.[5]
Some states, like California, have WARN Acts that provide more extensive protections for workers.[6] They may apply to relatively small businesses and may even apply to large-scale furloughs.
Am I entitled to unemployment benefits after a furlough vs layoff?
One of the key differences between a layoff and a furlough is the availability of unemployment benefits. Generally, if you are a laid-off employee, you are entitled to unemployment benefits. If you are a furloughed employee, you likely will not be.
Different states have different eligibility and income requirements. Most states require you to be actively searching for a job in order to be entitled to unemployment. Many furloughed employees are waiting for their old role to reopen and are not doing a new job search.
You should discuss your eligibility for unemployment insurance benefits with your human resources department before being let go.
Am I entitled to severance pay?
You are generally not legally entitled to severance pay. However, some employers choose to provide it voluntarily.
[1] U.S. Department of Labor: Wage and Hour Division, “Fact Sheet #70: Frequently Asked Questions Regarding Furloughs and Other Reductions in Pay and Hours Worked Issues,” (Sept. 2019).
[2] 21 USC 2101 et seq.
[3] Same.
[4] Same.
[5] Same.
[6] California Labor Code 1400 et seq. LAB.