Furloughed vs. Laid Off: What Does It Mean and Which Is Better?

Here’s what you need to know when it comes to how furlough works, and the pros and cons of being furloughed versus laid off.

Furlough vs Laid Off: What Does It Mean and Which Is Better?
Updated May 13, 2024
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Business closures due to the coronavirus pandemic have required many companies to consider budget cuts, including laying off or furloughing employees. Companies from Macy’s and JCPenney to GE and Tesla have announced that they have furloughed thousands of employees, even those with the best jobs, leaving many workers wondering how to make money during this time.

Mass furloughs and layoffs have left many Americans concerned about their finances. In fact, a recent FinanceBuzz study revealed that more Americans are worried about our finances than about catching the coronavirus. Various reports have shown that anywhere from 59% to 78% of Americans were living paycheck to paycheck before the pandemic shut down the economy, which means most of us had little savings to rely on.

If you’ve been furloughed or are worried that changes are coming to your employment status, you may be wondering whether it’s better to be furloughed or laid off. This knowledge could help you better weather a financial setback. With that in mind, we’re here to answer all your questions about furloughs versus layoffs, so you’ll know what to expect and how to handle it.

In this article

What’s the difference: furlough vs. layoff

A furlough is a mandatory leave of absence from your job. It is a temporary separation from work during which you will not receive pay, but you are expected to return to work at the end of the furlough period. A furlough could mean you take unpaid leave for one day a week or a couple weeks during the year, or it could involve not coming in to work at all, as is the present case for many people.

A layoff, on the other hand, is more likely to be permanent. There is such a thing as a temporary layoff, though, which is not that different from the type of full-scale furloughs we are seeing right now, and this is why the terms have become confusing. Regardless, if you have just been laid off, then you are likely seeking employment elsewhere and are no longer receiving your company’s benefits. Furloughed workers often continue to receive certain employment benefits.

Additionally, being laid off is different from being fired. Layoffs generally occur because the business can no longer afford to pay certain employees, whereas an employee can be fired for a variety of reasons. Layoffs primarily refer to situations in which the employee is not to blame for being released from their job.

Why do companies furlough employees?

Companies often choose to furlough employees as a cost-saving measure when economic conditions, such as the current crisis, threaten to hurt their profits. For example, Macy’s lost the majority of its business when it closed its 775 stores, so the company made the decision to furlough most of its 125,000 employees.

Companies often prefer to use furloughs rather than mass layoffs because it’s less costly to bring back their employees after a period of time than it is to train new employees for those roles once business returns to normal.

How does furlough work for you?

When a company furloughs workers, those workers are mandated to cease working and do not receive pay. Many business owners choose to maintain certain benefits for furloughed workers, such as health insurance and 401(k) contributions, though there’s no law requiring it. Keeping these benefits can be extremely helpful for employees facing a long furlough, who would otherwise have to pay high premiums to continue their health benefits through COBRA or find an Affordable Care Act plan that can work for them.

Some companies regularly furlough employees due to the seasonality of their businesses or due to government budget shortfalls. But as there’s still no telling what will happen with stay-at-home orders across the U.S., there’s no way to know for sure how long coronavirus-related furloughs will last.

Rules regarding furloughs vary by state and jurisdiction. The federal WARN Act requires companies with more than 100 employees to announce furloughs 60 days in advance if they affect more than 50 employees. And some states have more robust laws than that; for example, in California, any furlough lasting 30 days or longer and affecting 50 or more employees requires notice.

But although certain furloughs require notice to workers under the law, it’s likely that requirement will be waived due to the pandemic. That’s because the WARN Act contains an exemption for unforeseen circumstances. Also keep in mind that some companies may choose to move from furloughs to layoffs in the future if they can’t recoup the funds needed to rehire their entire workforce.

Can you collect unemployment if you’ve been furloughed?

Yes, you can collect unemployment if you have been furloughed. Rules for furloughed employees vary according to state laws, but under the CARES Act, unemployment benefits are extended to include all furloughed employees. The stimulus package also adds an additional $600 in weekly payouts through July 31, 2020. Furloughed employees will also be able to collect benefits for an additional 13 weeks.

The rules for unemployment are complicated in many states, but through the CARES Act, the federal government is working to ensure protection for anyone who has been separated from their job due to COVID-19. This now includes part-time workers and freelancers, not just full-time employees. To find out how to apply for unemployment in your state, check out our state-by-state guide to unemployment benefits.

FAQs about being furloughed

Can you work another job while on furlough?

Yes. Furloughed employees are allowed to look for and accept other work while they are furloughed. Now could be a great time to pick up a side hustle to tide you over until your job returns. Just keep in mind that if you obtain other work and have money coming in, this will impact your unemployment benefits.

Do you accrue leave while on furlough?

Although there is no legal requirement that you will continue to accrue paid time off while on furlough, some companies may be contractually obligated to continue to provide this benefit. Furthermore, some employers may force workers to take paid sick leave or vacation time during their furlough; others may allow workers to choose whether to use their available PTO.

Can you put salaried employees on furlough?

Companies may furlough salaried employees without pay so long as they do not work at all during the furlough. Although hourly employees are paid only for the hours they work, salaried employees must be paid their full weekly salary for every week that they put in any work. So if an employee works on a Monday and is put on furlough the next day, they still need to be paid their full salary for that week.

For this reason, salaried employees are likely to be asked not to come in at all during a furlough. Hourly employees can sometimes experience more limited furloughs, such as a worker being furloughed one day a week due to budget shortfalls.

How do companies decide whom to furlough?

In the case of the novel coronavirus pandemic, many companies are choosing to furlough all non-essential workers as both a cost-saving measure and a safety precaution. Some businesses may choose company-wide furloughs; others will furlough certain departments most impacted by closures and drops in consumer demand. Regardless, when it comes to who is furloughed, these decisions are based on the individual company’s needs.

The bottom line

Whether you’ve been furloughed or laid off, there is help available. Evaluating your emergency fund, applying for unemployment, and contacting your creditors are just a few of the things you can do to be proactive about your finances during this difficult time.

Both furloughs and layoffs can be financially devastating, but there are certainly advantages to being furloughed. You may be able to retain some of your employee benefits, and it’s likely you’ll be able to get back to work more quickly once the coronavirus crisis has ended.

But even if you are experiencing job loss and trying to cope with financial stress as well as look for a new job, know that your present circumstance will not be permanent. The economy will recover and hiring will begin again. Until then, trim your budget, use available resources, and stay safe.

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Author Details

Lindsay Frankel

Lindsay Frankel is a Denver-based freelance writer who specializes in credit cards, travel, budgeting/saving, and shopping. She has been featured in several finance publications, including LendingTree. When she's not writing, you can find her enjoying the great outdoors, playing music, or cuddling with her rescue pup.