Whether you’re implementing a layoff, furlough or reduction in force (RIF), it’s important to use the right term for the action you’re taking. This will help ensure accurate communication with affected employees and compliance with associated laws.
What is a layoff?
Layoffs are common during economic slowdowns and recessions, when the employer is forced to let the employee go in order to stay in business. As noted in the above-stated definition, a layoff can be temporary. For example, you might lay off an employee with the intention of bringing them back to work when things turn around financially for the company.
While some layoffs are indeed temporary, layoffs are often permanent from the outset. In other cases, layoffs end up becoming permanent even though they were intended to be temporary. Regardless of whether the layoff is permanent or temporary, the employee is terminated and taken off the employer’s payroll. To work for the employer again, the employee must be rehired.
When laying off employees, employers may need to comply with the federal Worker Adjustment and Retraining Notification (WARN) Act or state mini-WARN laws.
What is a furlough?
Dictionary.com defines a furlough as “a temporary release of a worker from their job, typically with the expectation that they will be asked to return.”
A furlough essentially places the employee on an unpaid leave of absence, typically due to a decline in business activity. Oftentimes, this decline stems from a government shutdown, the business going through a slow period or a national emergency like the COVID-19 pandemic.
Furloughed employees are not terminated. Instead, they are kept on the employer’s payroll and are usually allowed to retain their benefits coverage. Because they’re technically still employees, they do not need to be rehired when it’s time to return them to work. However, a furlough can turn into a permanent layoff if a decline in business activity fails to improve.
Furloughed nonexempt employees do not have to be paid for time not worked during the furlough. However, more caution is needed for exempt employees.
Under the Fair Labor Standards Act (FLSA), exempt employees must receive their full weekly salary for any workweek in which they perform any work. They do not have to be paid for any week in which they do not perform any work. This means you do not have to pay furloughed exempt employees if their furloughs last for the full workweek.
What is a reduction in force?
UpCounsel defines a reduction in force as occurring “when an employer decides to eliminate a portion of its workforce permanently. An RIF might remove one position from the company or could remove entire departments.”
With a reduction in force, the employer has no intention of reviving the position. Oftentimes, RIFs are caused by business strategy adjustments, severe budget constraints or larger organizational problems requiring a permanent reduction in employee headcount.
Note that a layoff can also be an RIF, such as when the employer decides to permanently eliminate a laid-off employee’s position.
To avoid employee confusion or legal problems, work with professionals to ensure you are communicating your situation clearly.