As the coronavirus pandemic continues to stall business operations in the U.S., employers are turning to furloughs and layoffs to stay in business. Last week alone, major retailers such Macy’s, Gap and Kohl’s furloughed hundreds of thousands of workers while closing stores. More than 10 million people applied for unemployment benefits in the month of March, according to the Department of Labor.
Whether you are furloughed or laid off, the fact of the matter remains: You are not getting paid by your employer.
But these two employment actions have different effects on your relationship to your employer. Here are answers to some of the biggest layoff and furlough questions:
What does being furloughed from a job mean?
When you are laid off from your job, your relationship to your employer is terminated, and you are no longer on the payroll. When you are furloughed, your relationship to your employer continues, just without you getting paid.
“A furlough is a mandatory, temporary unpaid leave. In the corporate world, it is usually implemented by companies facing financial setbacks or dramatic changes in customer demands, market share and company structure,” said Jie Feng, an assistant professor at Rutgers University’s School of Management and Labor Relations. “Some furloughs are seasonal due to the nature of the position or business ― for example, some jobs in the hotel industry ― but other furloughs are the result of a temporary emergency measure, such as we’re seeing now.“
One reason employers choose furloughs over layoffs is the administrative work layoffs require. When companies don’t terminate employees, they are not always obligated to make payouts of vacation time, said Amber Clayton, the knowledge center director at the Society for Human Resource Management. She noted later that California does require payouts and recommended that employees consult their state’s laws. But typically, “with a furlough, you’re keeping everyone on the payroll,” she said. “Nothing is changed other than everyone is on an unpaid leave of absence.”
Can you file for unemployment if you’re furloughed?
In the case of both furloughs and layoffs, you may be eligible to get unemployment insurance through the coronavirus relief package provided by the CARES Act, and you should apply for these benefits ASAP.
Do furloughed employees keep their health insurance?
If you lose your job through a layoff, you may be offered COBRA continuation coverage by your former employer, which allows you to maintain the same benefits ― at your own expense ― that your employer’s health plan covered.
Some employees who have been furloughed because of COVID-19 are getting to keep their health benefits. At Gap, furloughed workers get “applicable benefits until stores are able to reopen,” the retailer said.
But your health benefits are not always guaranteed to continue. “It really boils down to what is in that benefits plans document,” Clayton said. Plans will often have requirements that employees must work a certain number of hours to receive benefits, Clayton said.
If your employer says your health plan can continue, your employer needs to communicate with you on how employee deductions will work when you are not getting a paycheck. “The employer would have to figure out, ‘Are we going to pay it for the employees, the employer and the employee portions, or is the employee going to pay it when they get back?’”
What about my other benefits, like 401(k) and paid vacation time?
Some companies that are doing furloughs are letting employees use their paid vacation days. Disney said furloughed workers can apply paid vacation time to their furlough start date, for example.
But if you are furloughed, the continuation of your benefits, including paid vacation time, depends on your employee benefits plan. When you are furloughed, you get to keep your employer-sponsored 401(k) account, but you won’t be able to make contributions to it. Employees “would have to determine if they wanted to make some catch-up contributions after they returned to work... or if they just want to leave it alone and not have those contributions made for those two weeks or however long they are on the furlough,” Clayton said.
If you are laid off, your state law determines if you are paid out for unused paid vacation time or not. As for your 401(k), once you are terminated, you have the option to roll your retirement assets over into an individual retirement account (IRA) or a new employer’s retirement savings plan, or to cash it out.
How long can you be furloughed because of coronavirus?
A furlough is meant to be a temporary unpaid period, but there are no definite answers of when a furlough needs to end. Feng said employers should implement a furlough only if they plan to recall the workers within one year. The Paycheck Protection Program incentivizes certain employers to hire back their employees and not lay them off, but estimates of coronavirus business shutdown dates keep changing, said Donna Ballman, a Florida-based employment attorney.
“For someone who is in limbo waiting to get reinstated for their job, that’s a real problem,” she said, adding, “Employers can say, ‘We’ll bring you back as soon as we can, but we don’t know when that is.’”
Is it better to be furloughed or laid off?
Ballman said both employment actions are similar because you are not getting paid, but she noted that if your furlough gives you a priority reinstatement, “Then, yeah, that’s probably better. You have a cushion there.”
Is your job safe if you are furloughed, or can you still be laid off? Can you look for other work if you’re furloughed?
Even if you are technically still employed by your employer through a furlough, it does not mean your job is secure. “Although the furlough is designed to be temporary, there is no guarantee that all furloughed employees will return. Furloughs sometimes lead to layoffs if the company’s financial problems do not improve,” Feng said.
Job market insecurity is why Ballman advises job searching if you hear you are getting furloughed. “I would start looking elsewhere because it’s hard to say what any company is going to be able to do, whether any company will survive or not,” Ballman said.
Can you furlough yourself?
Clayton said this was a question she has heard employees ask because they don’t want to return to work during the pandemic.
But “furloughs are typically initiated by the employer, not the employee,” she said.
CLARIFICATION: This article has been updated to clarify that at least one state requires companies to pay out vacation time to furloughed employees.
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