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The Difference Between Furloughs And Layoffs: Which Is Right For Your Business?

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Sometimes employers have to make decisions to improve or protect their business’ bottom line. This may mean they might need to consider laying off or furloughing some of their workforce for a period of time. As an employer, it’s important for you to choose the course you need to take wisely. It’s also equally important to use the right language in communicating with your employees who will be affected by your actions.

Your first order of business when sending employees home for a period of time is to communicate exactly what’s going on, and what it means. Not all employees may understand exactly what a furlough or layoff means. Some industries use temporary furloughs and layoffs regularly, however, you need to be sure to communicate your plans for the future with your staff, even if you are uncertain, or their “time off” will only be for the short-term.

What Is A Furlough?

A furlough continues employment, but reduces scheduled hours or requires a period of unpaid leave. The thought is that having all employees incur a bit of hardship is better than some losing their jobs completely.

For example, a company may reduce hours to 20 per week for a period of time, or they may place everyone on a two-week unpaid leave as a cost-saving measure. This is typically not considered termination; however, you may still need to provide certain notices to employees about the change, and they will likely still be eligible for unemployment.

If only certain employees will be furloughed, not the entire company, it is important to be able to show that staff selection is not being done for a discriminatory reason. Document the nondiscriminatory business reasons that support the decision to furlough some employees (e.g., those that are not performing essential services) and not others.

What Is A Layoff?

A layoff involves terminating employment during a period when no work is available. This may be temporary or permanent. During the COVID-19 pandemic, the need for layoffs dramatically increased, as businesses that would typically not have need of this option found themselves needing it — for example, restaurants that had to close entirely for a period of time due to health and safety mandates.

If a company closes down completely but intends to reopen in the relatively near future or has an expected reopening date at which time some or all employees will be rehired, this would be considered a temporary layoff.

Temporary layoffs are appropriate for relatively short-term slowdowns or closures. A layoff is generally considered permanent if there are no plans to rehire employees because the slowdown or closure is expected to be lengthy or permanent.

Pay For Exempt Employees

Exempt employees (those not entitled to overtime) do not have to be paid if they do no work at all for an entire workweek. However, if work is not available for a partial week for an exempt employee, they must be paid their full salary for that week, regardless of the fact that they have done less work.
If the purpose is to save money (and it usually is), it’s best to ensure that the layoff covers the company’s established seven-day workweek for exempt employees. Make it clear to exempt employees they should do absolutely no work during any week you’re shut down. If exempt employees do any work during that time, they will need to be paid their normal weekly salary.

Pay For Nonexempt Employees

Nonexempt employees (those entitled to overtime) only need to be paid for actual hours worked, so single-day or partial-week furloughs can be applied to them without worrying about pay implications.

Communicating With Employees Is Key

We’ve identified the right terms to use, how to manage salary expectations and return to work, and other best practices when it comes to furloughs and layoffs. We need to emphasize the importance of genuine transparency when communicating with employees during downtimes or up. Good employee communications and engagement is critical to the long-term endurance and growth of your business. Employees who are aware of your vision, and on-board with your plans, will often make recovery and returning to business easier.