It’s never easy to downsize your business, especially during financial disruptions. Those who don’t have enough work or enough funds for payroll decide to opt for layoffs or furloughs.
If you are an employee, you also need to understand how both options work, their advantages, and their drawbacks.
While leave is generally temporary, a layoff is mainly a permanent termination. Here is what to consider if you select between a furlough and a layoff.
What Is a Furlough?
When a business or a company offers a temporary leave of absence, it’s considered a furlough. This option is suitable for a challenging period assuming the employee will return to a regular working schedule when this temporary leave is finished.
The working hours can be lowered during this time. Sometimes, an employee is asked to take a leave of absence without any salary.
If you are a worker who is furloughed, you may be demanded to take the following:
- A single block of unpaid working time off.
- A certain number of hours or days which are unpaid during the year.
- A certain number of working hours are unpaid for a few weeks.
How Furloughs Work
You can see several reasons why a furlough is necessary. Here are some of how this option may be structured:
- The recruiter tells an employee to take a few weeks of unpaid leave. Usually, one such vacation is asked to be taken each quarter. It happens when a company experiences work reduction.
- The recruiter tells an employee to stop working for one month. It happens when the company has no work for some time but expects to keep having a job again in the near future.
- The recruiter isn’t lowering your pay or hours. On the other hand, the employer may demand you utilize all your paid time off during this year.
- The recruiter claims all employees will stop working on Fridays for uncertain times. The company wants you to keep on working by the business has reduced.
Sometimes, employees must rely on lending products and loans to make ends meet if they are furloughed for an extended period.
A hard inquiry during the loan application may lower the borrower’s credit rating, while online crediting institutions perform a soft check.
What Is a Layoff?
This is a termination of work or dismissal of an employee. While permanent layoffs may be the outcome of a monetary issue or economic crisis, temporary layoffs are also widespread in particular fields.
Specific industries and ventures practice temporary or seasonal layoffs and later rehire their workers again.
According to the information concerning plant closings and layoffs by the US Department of Labor, the Worker Adjustment and Retraining Notification Act (WARN) protects employees and their families.
The WARN demands recruiters with over 100 workers provide a minimum of 60 calendar days advance written notice of a plant closing. Exceptions can be made for natural disasters and faltering organizations.
This advance notice gives employees and their families time for transition and adjustment.
How Layoffs Work
A furlough works differently from a layoff. When you are laid off, you will likely need to start searching for a new position, and the recruiter doesn’t expect to rehire you.
It can happen due to economic disruptions or a significant shortfall when there isn’t any work. It doesn’t mean you’ve done something wrong or haven’t been a good employee.
It means the company doesn’t have work to conduct, so you should look for another job. Seasonal layoffs are widespread in some industries.
You might be rehired if you work in the:
Many consumers have experienced employment issues such as reduction of hours, layoff, or unpaid leave since March 2020, according to the Federal Reserve.
Twenty percent of respondents claimed they were laid off or told not to work, while ten percent said their working hours were reduced or they had unpaid leave.
Twenty percent of consumers working before the pandemic said their working hours increased or they started working overtime.
What Are Your Rights?
The good question is to know your rights in case you are being laid off or furloughed. Here are some contracts and laws that demonstrate your rights in this situation:
- The Affordable Care Act
- The Fair Labor Standards Act
- State WARN laws
- The federal Worker Adjustment and Retraining Notification (WARN) Act
- Equal Employment Opportunity laws
- The Family and Medical Leave Act
- State unemployment insurance laws
Pros of Furlough
- Workers may keep on getting continued benefits and unemployment insurance.
- A furlough lowers the need to recruit and is temporary.
- Both employees and recruiters may feel more comfortable knowing that they will return.
Cons of Furlough
- Well-qualified workers may quit and land a better-paid position.
- This process may be challenging as some states demand recruiters to pay workers during vacation.
- Recruiters may notice a lowered company morale and instability in workers’ performance.
Pros of Layoff
- A layoff saves company funds as there is no need to pay salaries.
- It can benefit the company’s reputation if the recruiter treats the workers well during the layoff.
- These workers get a chance to find better jobs.
Cons of Layoff
- Qualified and skilled employees may be lost permanently as they seek other employment.
- It’s expensive to recruit, terminate, and hire workers. Hiring and firing may be costly for business owners and also take a lot of time.
- Company morale can be lowered due to payoffs. Those who stay at work may need more workload, so burnout is common.
The Bottom Line
It’s not the best feeling to be laid off or furloughed. You shouldn’t take it personally as this is a purely economic decision.
You may be rehired after a furlough, and you will most likely have to search for a new job if you’ve been laid off.
You need to know your rights and the options you may turn to for assistance. Having an emergency fund or substantial savings protects your financial stability.
Otherwise, seeking monetary aid in the form of loans or credit cards may be needed.