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A Beginner’s Guide to Furloughs, Layoffs, and Termination

As businesses look for ways to survive shelter in place orders, turmoil on Wall Street, and seemingly endless troubling news, leaders must make difficult decisions. Companies are determining if layoffs or furloughs are necessary to stay in business.  

Many of our clients and candidates have asked me to explain the difference between furloughs, layoffs, and termination. All three conjure fear, but they each carry a different definition.  

My job allows me to talk with leaders from a wide range of industries. I am learning that there is no one-size-fits-all approach to responding to a pandemic. Whether you are a concerned employee or an executive considering options to sustain an organization, it is important to educate yourself on these terms and their implications.  

What does furlough mean? 

The coronavirus is hitting the hospitality industry particularly hard. Marriott (among other hotel chains) shut properties throughout the country and says they plan to furlough tens of thousands of employees. Many airline employees face a similar fate.  

Furlough might sound familiar because of the 2019 government shutdown. The term has many implications.  

The definition varies from state to state. Generally, a furlough is a temporary leave of absence. Furloughs mean that employees do not work at all. Some companies will furlough a percentage of employees, while another portion continues to work reduced hours and they receive a portion of their salary. If an employer decides to furlough its employees, they are not required to pay severance packages. And then, hopefully, when business turns around, the employees can head back to work.  

Despite the difficult circumstances, employees do not have to hunt for a new job. And employers do not have to recruit and onboard a new team. Nevertheless, employees suffer from time without work.  

Even though a furloughed employee wasn’t laid off or terminated, they are eligible for unemployment benefits.  

Here are four questions to consider if you are thinking a furlough might work for your company:  

  1. Will employees keep their benefits? Check with your plan administrator. Some insurance carriers require employees to work a minimum number of hours to retain benefits. Many providers are currently making exceptions due to the current pandemic. 
  2. Does it make sense to pay a portion of the salary? You can furlough some employees and keep others at reduced hours or pay. Do the math. Calculate how many employees you can keep working if you make cuts.
  3. What talent do you want to retain? Be strategic about who makes sense to place on a bench. Businesses may suffer a big loss if some key players leave your organization because they were furloughed. It may be worthwhile to offer some employees reduced hours (as mentioned above) to ensure their continued value after the worst of the coronavirus passes. Remember, furloughed employees can and often look for new work. 
  4. How will you decide who is furloughed? Some companies ask for volunteers to take time off from their job. If you ask for volunteers, will those who do not raise their hand suffer consequences? Think it through.  

Is there a difference between layoffs and termination? 

To an employee, the end result is the same: they no longer have a job. However, the two terms have different meanings. A lay off occurs when an employer reduces or stops an employee’s hours because the position is no longer necessary or financially feasible. A termination happens when an employer breaks the contract of employment.  

What else do I need to know? 

The rules about these three concepts vary from state to state. The coronavirus bill changed how and when employees can access unemployment benefits. If you have no choice but to lay off employees, talk to an employment attorney first. Some states issued emergency declarations and laws that most likely will impact how employers proceed with layoffs and/or furloughs.  

Employers must also comply with the WARN Act. According to the Society of Human Resources, the Act, “requires advance notice when a mass layoff or plant closing occurs that results in employment loss for a requisite number of people.”  

If you are an employee awaiting your fate, know your rights. The Department of Labor published a set of resources explaining what is required of employers and what workers need to know during this unexpected and confusing time.  

We will get through this 

A wise person once told me that the only way to the other side is through. We will have to struggle through enormous challenges, but in the end I have no doubt, we will be stronger for it.  

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