It is no secret that unemployment numbers are skyrocketing across the country due to COVID-19 closures, cautious consumer behavior, and overall uncertainty. Losing your job, and trying to navigate the unemployment and business jargon, can be a terrifying event for people. Especially if you are trying to understand the difference between being laid-off and furloughed.
What does it all mean, and how are you supposed to navigate all this? Let’s start with the basics and see if it helps make things a little more transparent.
How bad is the unemployment problem?
According to Andrew Soergel (2020), a senior economic writer, “Over the past four weeks, roughly 22 million Americans have filed initial unemployment claims, according to data published on Thursday by the Department of Labor.
That’s about 14% of all Americans who were employed in February, the month before coronavirus lockdowns ravaged employment and business across the country. That’s also roughly equivalent to the entire population of Florida filing for unemployment.”
That is a lot of people receiving a letter from their employers saying something along the lines of:
Due to these unprecedented times, we have had to make the tough decision to…
It is at this point that the letter will say “lay-off” or “furlough,” a certain number of our staff, including your position. These are tough enough words to read, and trying to decipher the subtle differences between the two scenarios can make it all seem even worse!
What does laid-off mean?
A lay-off usually happens when the employer can not provide enough work to keep an employee on. While an employee will sometimes be asked to reapply when the workload picks back up, there is no company incentive or expectation that the employee will return to their job. If you are laid-off, you are no longer an employee of the company.
What does furlough mean?
According to LegalMatch.com, “Furlough is a type of leave from work, usually mandatory, with no pay. It may be due to the economic conditions or special needs of a company, or in some states and the federal government, a furlough is used to cut costs in certain government offices.
With a furlough, employees are allowed to come back to work once regular business resumes.” Under these circumstances, you’re still an employee; you do not report to work or get paid at the moment. Companies will often continue to pay their portion of insurance premiums as an incentive for their furloughed employees to come back when the company requests them to.
How long can an employee remain furloughed?
A furlough is a temporary solution meant to cut costs because of an immediate issue that a company is facing. It can last from a week to a few months. If the company needs to reduce its workforce as a measure of cutting costs permanently, then it should lay-off employees.
There are several reasons why more extended furloughs are not the wisest idea, according to Martina Markovska:
- The unnecessary cost associated with paying the premiums of health insurance can be a crippling expense
- Can hurt the corporate brand
- Cause trouble in business relationships
Can a furloughed employee get laid off
By definition, furloughing an employee is a temporary solution, until the company can afford to bring the employees back to work. When the company stabilizes and can bring people back, they will do so without the added cost of hiring, recruiting, and training new people.
While that is the goal, there is no guarantee of that outcome. The company would let you know at some point if the furlough became a permanent lay-off.
Alternatively, if the unpaid leave lasts longer than an employee is comfortable with, they can choose, in most cases, without any repercussions (like not being hirable again), to resign voluntarily.
What this means now in regards to the COVID-19 pandemic
Before the COVID-19 pandemic, another difference between being furloughed and laid off dealt with unemployment benefits. There have been so many changes and addendums made to Unemployment Insurance, that if you have questions about that google your state’s UI office. These sites will have up to date information about qualifying for unemployment and walking you through the application process.
Being furloughed did not count as a qualifying reason to cash out your 401k before the coronavirus situation, as a person was still considered employed by the company. Companies like ADP have made changes to their policies due to changing government guidelines.
They are allowing furloughed employees to cash out their 401K accounts to help people through this crisis. (Always make sure to read the disclosure statement in regards to taxes when deciding what to do about these types of accounts.)
Use your resources
The best place to go to find answers about specific laws or policies is your state unemployment, or job services websites. If you need a little more help figuring out what to do now that you have experienced a lay-off or furlough, be sure to check out this article! If you have any other questions, leave them in the comment section below.