Furlough vs Layoff vs Reduction in Force: What's the Difference?
The article explains that a furlough is a temporary, unpaid leave where employees know their return date and cannot work during the period, serving as an alternative to layoffs—which are indefinite removals from payroll—and differs from reductions in force, with furloughs often used during short-term disruptions like COVID-19, and subject to specific rules under the Fair Labor Standards Act regarding pay and employee classification.
“Furlough.” “Layoff.” “Reduction in force.” These terms are often used interchangeably, but their meanings are quite different. Understanding the distinctions is important for both employers and employees.
What is a Furlough?
A furlough is a temporary, unpaid leave from work for a certain length of time. For example, an employer may furlough nonexempt employees one day a week for the remainder of the year, paying them for 32 hours instead of 40, or require all employees to take a week or two of unpaid leave. The idea is to spread the hardship around by asking staff to sacrifice a small portion of their paycheck so everyone can keep their jobs.
How is a furlough different from a layoff?
A furlough is an alternative to a layoff. While a layoff removes selected employees from the payroll for an undetermined length of time, furloughed employees take unpaid time off, knowing exactly when they will return to work.
Why would a company choose to furlough?
Companies may choose furloughs during periods when work cannot be performed due to outside influences, such as COVID-19, government shutdowns, seasonal work, or strikes. These situations are usually short-term.
What is the No-Work Rule?
Furloughed employees cannot work for the company during the furlough. For example, they cannot answer work emails or take work-related phone calls. If an exempt employee does any work while furloughed, they must be paid for the entire day; non-exempt employees must be paid for any time worked.
How is a furlough impacted by FLSA?
The Fair Labor Standards Act (FLSA) allows companies to cut pay and/or hours from non-exempt employees as long as they do not go below minimum wage. For exempt employees, salary reductions may mean they are no longer exempt, unless the reduction is due to a business or economic slowdown and not used to evade salary basis requirements. It is recommended that exempt employees be furloughed for a full workweek to maintain their exempt status.
What is a Layoff?
A layoff occurs when a company stops paying one or more employees because there is not enough work or it cannot afford to pay them. Employees who are laid off may be eligible for unemployment benefits. A key feature of a layoff is the intention that employees may be recalled back to work.
What’s the difference between being fired and being laid off?
Firing or termination is due to unsatisfactory performance, policy violations, or failure to meet employment contract terms, with no expectation of rehire. Layoffs are usually due to company financial issues or restructuring, not employee performance. Typically, fired employees are not entitled to unemployment benefits, while laid-off employees may be.
How to decide whether to lay off an employee
Layoffs often occur during economic downturns, recessions, downsizing, or office/plant closures. Companies typically choose whom to lay off based on hire date, performance, and manager opinions. It is important to ensure no discrimination is involved in the decision.
Are laid off workers entitled to unemployment benefits?
Yes. Each state has its own guidelines for unemployment benefits. The federal government has extended unemployment insurance to certain situations, such as closures due to COVID-19, quarantine, or caring for a family member. Employees should check with their local unemployment office for eligibility.
Does severance pay affect unemployment benefits?
Yes. Severance packages may affect unemployment benefits, depending on the state. Severance could impact both the amount and timing of unemployment benefits. Employees must claim and pay taxes on any severance payments.
What is a Reduction in Force (RIF)?
A reduction in force (RIF) is permanent. It involves eliminating a position entirely with no intention of refilling it, thereby permanently reducing the workforce and payroll. A RIF can be accomplished by terminating employees or through attrition.
What’s the difference between a layoff and RIF?
A layoff is intended to be temporary, with the possibility of recall. A RIF is permanent, with no intention of rehiring for the eliminated position. Sometimes a layoff may turn into a RIF if the employer later decides not to recall employees.
Are there potential legal issues with a RIF?
Legal issues can arise if discrimination is not considered before implementing a RIF. The U.S. Equal Employment Opportunity Commission (EEOC) recommends reviewing the list of employees to be terminated to ensure certain groups (such as older employees or those with disabilities) are not disproportionately affected.
What else do I need to do to stay compliant during a RIF?
Review the Federal and State Worker Adjustment and Retraining Notification (WARN) Act before conducting a RIF. The WARN Act requires employers conducting large-scale layoffs to provide 60 days’ notice to affected employees, state whether the layoff is permanent or temporary, and outline the process for recalls or applying for future positions. Some states have additional requirements.
Are unemployment benefits available to employees affected by a RIF?
Yes. Unemployment benefits are available to workers who lose their jobs through no fault of their own, including those affected by a RIF, provided they meet normal eligibility requirements. Employees should contact their local unemployment office to file a claim.
It is important to clearly communicate to employees the type of payroll separation—furlough, layoff, or RIF. If you plan to ask the employee back, make sure they know that and try to maintain benefits as an incentive.
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