Many Companies Will Need to Reduce Employee Payroll Costs Due to COVID-19—What’s the Difference Between a Furlough and Layoff?

03.24.2020

As the COVID-19 pandemic continues to wreak havoc on the economy, and states across the country issue “stay at home” orders or require “non-essential” businesses to close, many employers will need to consider reducing the payroll costs associated with their workforces.  Employers should consider whether a furlough or a layoff is more appropriate for their circumstances.

• What is a furlough? A furlough is a temporary suspension from work, without pay, during which time the employee remains on the payroll. A furlough is typically accompanied by an expectation that the employee will restart work at a certain date in the future. 

• What is a layoff? A layoff, on the other hand, is a permanent termination of employment with an opportunity for rehire.

• What are the differences between a furlough and a layoff as it relates to employee benefits? This is the primary distinction between a furlough and a layoff: 
  • Under a furlough, benefits are typically maintained by the employee, but it is important to consult your company benefit plan documents (and the plan administrator) to make sure that the furlough is structured in a way that enables the company’s employees to remain covered under the benefit plan if hours and workdays are reduced.
  • Under a layoff, employees do not maintain their company benefits, as their employment is terminated. When an employee is laid off from a company with 20 or more employees, terminated workers must receive notice regarding their ability to continue their health benefits under COBRA. 
• Can my employees work at all during a furlough? If hourly employees work during a furlough they need to be paid for that time.  In addition, if an exempt salaried employee performs work during any part of the workweek (even responding to emails and calls),  the employee will generally need to be paid his or her salary.  Thus, it important to make clear that subject employees are not to perform any work during the furlough.  Temporarily disabling phone or email access can assist in implementing this directive. 

• How long can employees be furloughed? Furloughs do not have to be of any specific duration, but are supposed to be temporary.  If a furlough lasts for more than 6 months, the WARN Act and its notice requirements could be implicated depending on the size of the company and number of employees affected.  

• Will my employees be able to collect Unemployment Benefits after a furlough or a layoff? Employees are eligible for unemployment benefits after a layoff, and are also likely eligible for unemployment benefits during a furlough. Employers should encourage their furloughed workers to apply for benefits.  Furthermore, Virginia has made it easier for employees to collect unemployment insurance in the wake of COVID-19.   Applicants no longer need to wait one week before applying for benefits, and they no longer have to prove that the are actively searching for jobs while receiving the benefits. 

As with all personnel issues surrounding COVID-19, when in doubt, consult experienced employment counsel.