furloughs vs layoffs

Furloughs vs. Layoffs

 Furloughs Temporary Layoffs Permanent Layoff/Termination
Definition of Furlough/Layoffs both Temporary and Permanent A temporary unpaid leave of absence, employees retain their benefits and jobs. When the furlough period ends, employees go back to their same jobs with the same pay and benefits. An employer may specify if PTO may or may not be used during the leave. Employment is ended and treated as a separation or termination. Employment is ended and treated as a separation or termination.
There is an expectation for rehire or reinstatement after the COVID-19 crisis has ended. There is NO expectation for rehire or reinstatement after the COVID-19 crisis has ended.
Benefits From Furloughs vs. Layoffs An employee can continue on benefits coverage during furlough leave. The employee is expected to continue paying for monthly premiums for benefits during leave. The employer would establish an agreement with an employee to set up a monthly billing arrangement with the employee. In this situation, since the employee is terminated (even if temporary), benefits coverage ends the last day of the month. A termination does trigger a COBRA qualifying event. Optional: Employers can help cover the cost or portion of COBRA. Benefits coverage ends the last day of the month. A termination does trigger a COBRA qualifying event. Optional: Employers can help cover the cost or portion of COBRA.
Note: Health insurance carriers are making provisions under these circumstances, so check with individual carriers.  BENEFITS: Check with insurance carriers since you may be able to set up a Rehire Provision that would waive the waiting period should you rehire any of the laid-off employees.
Unemployment Insurance Employees in all categories are eligible for state UI. See state UI for details.
Applicability of FFCRA  Yes, since they remain an employee, they are eligible to receive these benefits if the employee meets eligibility requirements under the Act. Since the employee is no longer employed, they would not be eligible to receive EFMLA or EPFL under this Act. Since the employee is no longer employed, they would not be eligible to receive EFMLA or EPFL under this Act.
Note: Still waiting on DOL for final guidance on the application of FFCRA.
Separation and Severance Pay Not applicable since the employee is not separating from the company. Check state laws for final pay requirements. Check state laws for final pay requirements.
Check state law and company policy on paying out accrued PTO. Check state law and company policy on paying out accrued PTO.
Optional: Employer can initiate separation & release agreements if applicable. Option to offer severance pay but not required, and may not be advisable since it’s considered a “temporary” layoff. Optional: Employer can initiate separation & release agreements if applicable. Option to offer severance pay but not required.
Tax Credits under FFCRA Employers are eligible for a 100% refundable payroll tax credit on the wages paid for leave. Health insurance costs are also included in the credit.
The tax credits would be administered by the IRS and be creditable against employer-side payroll tax liability, with any excess refunded to the employer.
Tax credits for COVID-19 related pay sunset on December 31, 2020.
IRS Release: IRS and DOL Announce 2 New Payroll Tax Credits

** Get your Furlough Notification Letter Template Download.

Preparation for Furlough or Temporary Layoffs

 

Furlough: A temporary unpaid leave of absence, employees retain their benefits and jobs. When the furlough period ends, employees go back to the same jobs with the same pay and benefits. An employer may specify if PTO may or may not be used during the leave. An employee can continue on benefits coverage during furlough leave. The employee is expected to continue paying for monthly premiums for benefits during leave. The employer would establish an agreement with an employee to set up a monthly billing arrangement with an employee.

Temporary Layoff:

Employment is ended and treated as a separation or termination. There is an expectation for rehire or reinstatement after the COVID-19 crisis has ended. In this situation, since the employee is terminated (even if temporary), benefits coverage ends the last day of the month. A termination does trigger a COBRA qualifying event. Optional: Employers can help cover the cost or portion of COBRA. An employer can initiate separation & release agreements if applicable. Option to offer severance pay but not required, and may not be advisable since it’s considered a “temporary” layoff.

1. Plan

 

  • Articulate the need for a furlough or temporary layoff based on economic factors (COVID-19).
  • Estimate the cost of leave vs. layoff (severance pay, payout of PTO, benefits continuation, etc.).
  • Identify facilities affected and estimate the number of employees to be affected at each facility.
  • Plan the layoff as far in advance as possible.
  • Gather all relevant company policies and documents, including confidentiality and non-compete (if applicable).
  • Consider whether compliance with WARN is necessary if one of the following statements is applicable:
    • The company plans to lay off 500 or more employees from one facility.
    • The company plans to lay off 50 or more employees from one facility, and that total comprises at least one-third of the total employees at that facility.
    • The total number of employees discharged during any layoffs that occurred in the 30 days before the new layoff under consideration combined with the number expected to be discharged in the current layoff is 500 or more from one facility or 50 or more from one facility that is at least one-third of that facility’s workforce.
    • The total number of employees to be laid off in future layoffs expected to occur in the ensuing 90 days exceeds 500 from one facility or 50 from one facility that is at least one-third of the facility’s workforce.

2. Identify Affected Employees

 

  • Specify identification criteria based on objective factors such as seniority, performance, position, etc.
  • Compare the results of those selected with additional factors such as equal employment opportunity, disability status, impending benefits and whistleblower, veteran status, etc.
  • Review all employee personnel files to identify potential claimants.
  • Review employees to guard against disparate impact discrimination claims (i.e., seniority may create age impact).
  • Finalize the identification process and calculate the total number of employees to be laid off from each department.

3. Notification [see sample notification letters]

 

  • Notify identified employees: (if WARN Act may need to give a 60-day notice)
    • Whether the leave is a furlough, temporary layoff, or permanent layoff.
    • Terms of the separation (UI, severance, PTO, benefits, opportunity to apply, etc.)
    • If furlough employees would be expected to continue paying for benefits premiums.
    • Return of office equipment, badge, etc.
    • Collecting of personal belongings
    • Final paycheck
    • IT shutoff, email/VM forward
    • Severance packages (if applicable) – include the following materials:
      • A letter explaining the economic circumstances that led to or contributed to the layoff;
      • Details regarding severance, benefits, COBRA, etc.
      • A separation agreement and release of claims against the company (over and under age 40 language)
      • Final Pay laws by State
      • Internal communication to the remaining staff
      • Determine who will take over job responsibilities in the short term.
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