What Is the Difference Between a Furlough and Layoff?

How to manage a layoff
••• Getty Images/Image Source

According to projections from the Economic Policy Institute, nearly 20 million workers will lose their jobs through furloughs and layoffs by July 2020. Further, because many furloughed workers still show up on employer payrolls, even these eye-opening numbers may not capture the full picture of unemployment due to the economic impact of the coronavirus pandemic

However, while both furloughs and layoffs have the same short-term financial effect—i.e., the immediate loss of your paycheck—they can lead to very different long-term outcomes.

If you’ve recently lost your job and you’re wondering about the difference between a furlough and a layoff, here’s what you need to know.

What Does It Mean to Be Furloughed?

A furlough is a mandatory, temporary unpaid leave, reduction in hours, or pay cut. Employers use furloughs to trim payrolls in response to a business slowdown or an economic downturn. Both private employers and public agencies may resort to furloughs to save costs.

During the coronavirus pandemic, for example, Macy’s furloughed most of its 125,000 employees, while Disney World pursued the same action with 43,000 workers.  City governments from San Antonio to Cincinnati were also forced to put staff on unpaid leave.

Unlike a layoff, furloughs are intended to be for a limited time. Employees stay on the organization’s books and may return to work after the furlough is over. 

Still, workers are free to look for a new job during a furlough, and companies may also decide to cut positions permanently via a layoff if economic conditions don’t improve.

During a furlough, employers may place all employees on unpaid leave, rotate workers through furlough, or furlough only those workers in non-essential functions. Depending on the status of the workers—whether they are exempt or non-exempt—employers might ask them to take one unpaid day off per week, or they may furlough employees for several weeks or months at a time.

Furloughed Workers: Exempt vs. Non-Exempt Status 

Non-exempt employees are those who are entitled to overtime pay through the Fair Labor Standards Act (FLSA), while exempt employees are not. The federal government provides several tests to determine whether workers are entitled to overtime pay, including job duties and a salary threshold. Workers who are not exempt from FLSA standards are entitled to time-and-a-half overtime pay for hours worked over 40 in a workweek. As of January 1, 2020, the salary threshold is $684 per week. 

Guidelines for Hourly Workers

Generally speaking, non-exempt workers are hourly employees in non-managerial roles. Your status as an exempt or non-exempt worker matters when it comes to furloughs because it can determine the way in which your employer can place you on unpaid leave.

Employers can furlough hourly employees by reducing their schedules, for example, from 36 hours to 30 hours per week. Or they may place workers on a “zero-hour” schedule in which employees stay on the company payroll but don’t come into work and don’t draw pay. They may not, however, reduce an hourly worker’s pay to less than the minimum wage. 

Guidelines for Salaried Workers

Different rules apply to exempt workers. For the most part, companies can reduce salaried workers’ pay as long as that pay is consistent and in keeping with a plan to preserve the company’s long-term prospects. However, reductions in pay may trigger the loss of exempt status for some workers, which might make those workers eligible for overtime pay.

Salaried workers cannot perform any work for their employer during a no-work furlough—not even checking email. If you’re a salaried worker and you’re required to work during a furlough, your employer may be required to pay you the equivalent of a full day’s work.

Next Steps If You’ve Been Furloughed

Whether you’re an hourly or salaried employee, you have rights if you have been furloughed. For example, you may be entitled to advance notice of a furlough or layoff via The Worker Adjustment and Retraining Notification (WARN) Act. According to this protective measure, a company that employs more than 100 full-time workers (or part-time workers who work more than 4,000 hours a week in aggregate) must provide 60 days’ notice before a layoff, plant closure, or furlough.

You may also be entitled to unemployment compensation during a furlough. Workers who are furloughed, laid off, or unemployed through no fault of their own are eligible to receive pandemic unemployment benefits. The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows the states to provide additional unemployment benefits to workers who have lost their jobs. The CARES Act also extends unemployment benefits to workers who would not ordinarily be eligible for unemployment compensation including freelance, self-employed, and gig workers.

To learn more, contact your state unemployment insurance department. The U.S. Department of Labor’s CareerOneStop resource has a list of every department.

Often, employers will continue your healthcare coverage during a temporary leave such as a furlough. However, you may be required to pay your employee contribution, which may be challenging when your pay is on pause. You may also be eligible for COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage if your furlough leads to a loss of coverage—but again, that can be costly. The IRS is currently allowing investors to temporarily borrow up to $100,000 from their retirement accounts to pay for health care.

You may also qualify for a special enrollment period through the Affordable Care Act exchanges. Depending on your income, you may be eligible for subsidized insurance.

The Difference Between a Furlough and a Layoff

The primary difference between a layoff and a furlough is that while a furlough is intended to be temporary, a layoff is permanent. There is no guarantee that you’ll get your job back. 

During the coronavirus pandemic, employers in nearly every sector of the economy have laid off workers.

While the travel, leisure, and hospitality industries were especially hard hit, even healthcare organizations laid off workers due to a reduction in elective procedures. 

Typically, companies resort to layoffs when they need to cut expenditures quickly. Layoffs save employers expenses such as health insurance premiums, retirement contributions, and other costs that may be difficult to meet during a recession. However, because laid-off workers often won’t return to their jobs after an economic crisis has passed, a layoff can be a more costly option in the long term if employers need to staff up again. Factoring in the expense of recruiting and training, it can cost one-half to two times the employee’s annual salary to replace an employee.

Next Steps If You’ve Been Laid Off

There are no federal laws requiring employers to provide workers with severance pay after a layoff. However, many companies choose to provide severance anyway as a gesture of goodwill and an investment in their employer brand.

If you’re laid off through no fault of your own, you are likely entitled to unemployment compensation. Depending on how your state chooses to implement the CARES Act, you may also be eligible for expanded unemployment benefits, which may include an additional $600 per week and extended eligibility for 13 weeks after standard benefits run out.

In most states, you can file for benefits online. Visit the Department of Labor’s CareerOneStop site to access a directory of state unemployment websites.

If you worked for a company with 20 or more employees, you are eligible to continue your employer-sponsored healthcare coverage under COBRA. However, you will be required to pay the full cost of the monthly premium, which may be several times the cost of your contribution as an employee.

You may find cheaper options under the Affordable Care Act and qualify for tax credits based on your income. 

Depending on your financial situation, you may also be eligible for Medicaid. Meanwhile, the Children’s Health Insurance Program (CHIP) provides healthcare coverage for children, and in some states, for pregnant women as well.

How to Move Forward After a Furlough or a Layoff

If you’ve been furloughed or laid off, it’s normal to feel blindsided even if you had a feeling that you might lose your job. During a time of mass unemployment, it might be difficult to feel optimistic about your chances of landing a new position. But take heart: even during an economic crisis, it is possible to find a job.

The first step is to get information about where you stand. Talk to the human resources department at your former employer and find out as much as possible about severance, unemployment, employee benefits, unpaid vacation and sick time, and so on.

Then, apply for unemployment benefits. This is a good idea even if the employer claims you’re not eligible. You might be surprised to discover that you qualify.

Keep in mind that if you are called back to work from a furlough by your employer, you will most likely lose unemployment benefits if you don’t return to work when the business reopens.

Assess your finances and make a financial plan for the short and long term so you’ll be prepared if your unemployment benefits run out before you secure another full-time job.

Finally, don’t put all your eggs in one basket. Conduct your job search through multiple avenues—job search sites, social media, and networking contacts. You never know where you’ll find your next job.

Article Sources

  1. The Economic Policy Institute. “Nearly 20 Million Workers Will Likely be Laid Off or Furloughed by July.” Accessed May 6, 2020.

  2. Axios. “Disney World Furloughing 43,000 Workers Following Coronavirus Shutdown.” Accessed May 6, 2020.

  3. Business Insider. “The Coronavirus Outbreak has Triggered Unprecedented Mass Layoffs and Furloughs. Here are the Major Companies That Have Announced They are Downsizing Their Workforces.” Accessed May 6, 2020.

  4. NBC News. “Sickness, Death—Then Layoffs. Coronavirus Forces Cities to Cut Budgets and Furlough Staff.” Accessed May 6, 2020.

  5. The Society for Human Resource Management. “What Is the Difference Between a Furlough, a Layoff and a Reduction in Force?” Accessed May 6, 2020.

  6. U.S. Department of Labor. "Overtime Pay." Accessed May 5, 2020.

  7. U.S. Department of Labor, Wage and Hour Division. “Final Rule: Overtime Update.” Accessed May 6, 2020. 

  8. Business Insider. "Companies are putting workers on 'zero hour schedules.' Here's how you can get unemployment benefits even if you're not officially laid off." Accessed May 6, 2020.

  9. 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.” Accessed May 6, 2020. 

  10. SHRM. "Weathering Coronavirus: Furloughs, Layoffs or Pay Cuts?" Accessed May 6, 2020. 

  11. Electronic Code of Federal Regulations. "Part 639: Worker Adjustment and Retraining Notification.” Accessed May 6, 2020.

  12. SHRM. "The Coronavirus Aid, Response, and Economic Security Act (CARES Act)." Accessed May 6, 2020.

  13. CNBC. “How To Keep Your Health Insurance if You’re Furloughed or Laid Off.” Accessed May 6, 2020.

  14. SHRM. “Consider These Benefit Issues Before You Furlough or Terminate Employees.” Accessed May 6, 2020.

  15. CNBC. "Congress will let you take $100,000 from your 401(k). Should you?" Accessed May 6, 2020. 

  16. Los Angeles Times. “Thousands of Healthcare Workers Are Laid Off or Furloughed as Coronavirus Spreads.” Accessed May 6, 2020.

  17. Business Insider. “The Coronavirus Outbreak Has Triggered Unprecedented Mass Layoffs and Furloughs. Here are the Major Companies That Have Announced They are Downsizing Their Workforces." Accessed May 6, 2020.

  18. Gallup. “This Fixable Problem Costs U.S. Businesses $1 Trillion.” Accessed May 6, 2020.

  19. U.S. Department of Labor. "Severance Pay." Accessed May 6, 2020.

  20. U.S. Department of Labor. "Continuation of Health Coverage (COBRA)." Accessed May 6, 2020.

  21. U.S. Department of Labor. "Unemployment Insurance Relief During COVID-19 Outbreak." Accessed May 6, 2020.