What is the difference between Furlough and Layoff?

Furlough vs. Layoff: Let’s discuss their differences, similarities, pros & cons, define which is better for employees and employers, and finally, answer some frequently asked questions (FAQ)
Furlough vs. Layoff: Top 7 Differences, Pros & Cons, FAQs

Furlough vs. Layoff: the terms furlough and layoff are used to denote unemployment or cutting down on an employee’s job activities and salary. While furlough is a temporary suspension of an employee, layoff usually refers to the permanent removal of the employee from the job. In the former case, rehiring is not required whereas layoff requires rehiring if need be.

Understanding furlough vs. layoff definition for establishing a clear idea

What is Furlough?

Furlough is defined as an unpaid leave of absence granted to an employee for a fixed term. It might also mean reduced work hours resulting in a salary cut.

What is a Layoff?

A layoff is defined as a permanent or temporary discharge of an employee from his duties. No salaries are paid thereafter.

Considering the pros and cons of furlough and layoff for both employees and employers

What are the advantages of furlough?

  • It helps to avoid permanent layoffs.
  • Employees are confident of returning to their jobs soon.
  • Employers can avoid rehiring costs.
  • Employees don’t need to go through the cumbersome process for getting hired again.

What is the downside of furlough? 

  • The employer might lose top-performing employees because of furlough as they might take up another job.
  • Business gets interrupted and employees might take some time in catching up with the routine activities after rejoining.

What are the advantages of a layoff?

  • Employers can pick and choose to retain top-performing employees while laying off others.
  • It encourages the remaining employees to improve their performance for preventing a layoff.
  • A permanent layoff is a cost-effective option if the employer isn’t planning to hire additional staff soon.

What is the downside of a layoff? 

  • It might increase the workload of retained employees. 
  • The remaining employees might lose confidence in the employer and seek employment elsewhere.

What happens to health benefits during a furlough?

The employees are usually eligible to receive health benefits during a furlough. However, the financial condition of your employer and your employment contract might hinder the receipt of health benefits during a furlough.

Do you keep your insurance on furlough?

Yes, you keep your insurance on furlough since you are still considered an employee by your company. You might have to pay your part of the premium from your pocket in case your salary during furlough isn’t sufficient for making the deduction.

Who pays health insurance premiums while on furlough?

The employer continues to pay for your health insurance premiums normally while you are on furlough. In most cases, the employee has to pay his part of the insurance premium from his pocket since there is no monthly salary to deduct such payments. Some employers, however, may decide to pay the whole amount or nothing at all, depending on their financial condition. In the latter case, the employee will be eligible for payments under COBRA (Consolidated Omnibus Budget Reconciliation Act).

Do you get severance with furlough?

No, furlough doesn’t come with severance payment since you are still considered an employee of the company.

Why would a company furlough instead of a layoff?

A company might choose furlough vs. layoff for a variety of reasons. Furlough is useful when either the company’s economic condition is poor or the whole economy is dwindling as in the case of coronavirus pandemic. It helps to cut costs temporarily in terms of salaries paid to employees while the company comes out of its struggle. Furlough also prevents the administrative costs associated with the layoff procedure like severance payments.

How much notice do you have to give on furlough?

There are no legal requirements to serve notice to a furloughing employee. Service dismissal can be instant in this case. 

Can I set up a business while on furlough? 

Yes, you can set up a business while on furlough as no legal requirements restrict this move. However, you must be sure that your contract of employment doesn’t restrict you from starting a business while being an employee. It is better to talk to your employer about your intention to start a business as it will help you prevent any legal issues in the future.

Is furlough and layoff the same for unemployment?

Yes, furlough vs. layoff unemployment leads to the same results. Both furloughed and laidoff employees are eligible to receive unemployment benefits. The employees must have earned a qualifying amount of salary in the previous year to receive these benefits. 

What are the similarities between furlough and layoff?

  • Both furlough and layoff will adversely impact an employee’s salary.
  • Both will result in cost savings for the employer.
  • You are eligible to receive unemployment benefits in both cases.

Top 7 Differences Between Furlough and Layoff

BasisFurloughLayoff
Employee statusYou remain officially an employee of the company during a furlough.You are no longer an employee and are free from the company’s side to look for another job.
Health insuranceBeing an employee of the company, you continue to be eligible for your health insurance.Your eligibility for health insurance ends. 
PermanenceIt is usually temporary.It is always permanent.
Reduction in work hoursIt can be in the form of a reduction in employee work hours.Employees are not allowed to work at all.
Returning to workYou will probably return to work after the furlough period ends.You cannot return to work once you are laid off.
Impact on salary You’ll receive little to no salary depending on the work hours decided.You won’t receive any salary from the company.
Re-hiring It doesn’t require an employer to re-hire his employees.The company is required to re-hire laid-off employees if the need arises.

Comparison Chart

Furlough vs. Layoff: Let’s discuss their differences, similarities, pros & cons, define which is better for employees and employers, and finally, answer some frequently asked questions (FAQ)

Comparison Video

Furlough v. Layoff, what’s the difference?

What is the basic difference between layoff and furlough? 

Conclusion: Your status as an employee determines the biggest layoff vs. furlough difference. You remain officially an employee of the company in case of furlough, whereas layoff struck off your name from the employee record. Furlough comes with the possibility of returning to work, and you tend to receive your insurance benefits.

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