The coronavirus has significantly impacted the economy, causing millions of employers to restructure their workforce to keep their companies in business.
As corporations temporarily shut down due to shelter in place orders to stop the spread of the virus, there’s no money coming in to pay their employees. As a result, widespread furloughs and layoffs have taken place. If this hasn’t directly happened to you, chances are it has affected someone you know.
Since this is all new territory for most of us, there’s a lot of ambiguity out there surrounding terms like furlough and layoff. Sure, we’ve heard these words many times before, but as they hit closer to home it’s important to get crystal clear about what they mean.
The guidelines for furloughed workers will vary by company, but the bottom line is an employee who is furloughed is still employed. To cut costs for the company, employees are not paid during the duration of being furloughed but they are kept on the payroll.
Furloughed employees are expected to return to their positions, although their job is not guaranteed. They could also face being asked to work in a different position than before and take a pay cut. When employees are furloughed the hours, weeks, or months they work are reduced or stop completely for a finite period of time.
Most states offer furloughed employees unemployment, in addition to eligibility to collect an extra $600 per week through July 2020, due to a Coronavirus relief law called the CARES Act. Generally, they will retain their benefits such as health insurance. They keep their rights as an employee, meaning they’re protected by discrimination laws and can’t get fired while on furlough.
As for 401k plans, furloughed employees likely won't contribute to it with no income but they can continue to add to it once they return to work.
Layoffs are permanent, meaning employees are let go from their jobs. While same layoffs can be temporary, the term layoff refers to an employee no longer working for their company and being taken off the payroll.
As a result, laid off employees are eligible to apply for unemployment. On top of state unemployment benefits, laid off employees can collect the extra $600 per week from the federal government. In some states, laid off employees are required to show they are actively looking for employment to receive the money, however, the COVID-19 outbreak might loosen those regulations.
Severance packages are sometimes offered to laid off employees, but they aren’t required. Severance payments can be made in a lump sum or paid in several installments. Any unused PTO is rolled into employees’ final paychecks, if state law permits.
As for health insurance benefits, laid off workers are ineligible to retain their benefits. Under COBRA, workers can opt to pay for any healthcare benefits previously covered by the employer.
Furloughs and layoffs are similar in that employees are no longer getting paid. The termination is a choice based on circumstances surrounding the employer, not job performance. However, there are stark differences in each term. Laid off workers are dismissed from their companies and no longer receive benefits or protections, while furloughed workers are still on the payroll and commonly retain their benefits.
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