The coronavirus pandemic isn’t only affecting people’s health and safety. It is also impacting people’s livelihoods as the virus hits the economy. The pandemic has brought the global economy to a halt. With restrictions on movement, nationwide lockdowns, and closure of businesses, the flow of money has become really slow. The virus has not only caused fear of transmission, but people are now even anxious about their job security.
With a loss of business, the pandemic has forced organizations to resort to tough measures that are intended to achieve cost savings. Sometimes, these measures include laying off employees to reduce the company’s payroll costs.
The world is currently witnessing an unprecedented surge in layoffs. In the past few days, nearly 22mn of American workers have filed for unemployment benefits. The figure is an all-time high and if such layoffs continue globally, the International Labour Organization’s prediction might come true sooner than expected. The UN body had earlier estimated that owing to the COVID-19 pandemic, worldwide there’ll be a loss of about 25mn jobs.
The World Bank has called for governments to provide stimulus packages for boosting the economy as the world braces for a financial crisis worse than the 2008 recession. But in lieu of layoffs, many major companies bracing for a deep economic downturn have decided to furlough employees. But what does a furlough mean, exactly — and how is it different from being laid off?
What does furlough mean?
A furlough is “a temporary layoff from work.” When you are furloughed, your relationship with your employer is not terminated like when it does when you’re laid off. A furlough is a mandatory, temporary unpaid leave.
The word furlough originally referred to “a leave of absence given to soldiers.” It was borrowed from the Dutch verlof, which is related to the English word leave. The word is often encountered during government shutdowns, in which mostly all nonessential public employees are told not to go to work.
However, In the corporate world, it is usually implemented by companies facing financial setbacks or dramatic changes in customer demands, market share and company structure. Some furloughs can also be seasonal owing to the nature of the business but most furloughs are the result of a temporary emergency measure.
A furlough is a form of temporary job cut, essentially a temporary layoff. Companies furlough workers with the goal of re-hiring once they’re back in business. Often, furloughed workers maintain health insurance, and some are even paid. Different companies support furloughed workers differently. Employers are also not allowed to give furloughed employees work, including answering emails and taking phone calls. Furloughed employees are also free to seek a new permanent job or even a temporary job unless the employer prohibits outside work.
Another reason why 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. How long a furlough lasts depends on the employer. Employers often decide to furlough, rather than lay off, workers because firing and hiring people is costly.
What does layoff mean?
Layoffs are when an employer dismisses employees. That is, they are let go (laid off) from their jobs. Sometimes, it is even referred to as “handing over pink slips.”
Historically, the term layoff meant temporary dismissals, like furloughs. But today, generally the word layoff is used when a person is permanently let go from a job. Although layoffs can also be temporary, rehiring is never guaranteed. According to a report by the Associated Press, since the early 1990s, layoffs in recessions have increasingly been permanent.
Layoffs are especially done when an employer lets go of employees because they can no longer afford to pay them, their business is down, or other economic reasons—not necessarily because employees weren’t good at their jobs.
A term that floats around a lot during these circumstances is a mass layoff, meaning many employees were laid off at the same time. If a person who is laid off were to return to their original job, they would have to be rehired.
How is a furlough different from a layoff?
If you are furloughed, you technically retain your job, whereas if you’re laid off, you are no longer employed at your job. Unlike layoffs, furloughs reduce labor costs without adding new costs such as severance packages and outplacement services. Although employers aren’t required by law to offer severance packages during layoffs, it’s not uncommon. And when business is on the upswing again, “employers do not have to pay for recruiting, selecting, socializing, and training new employees because the furloughed workers can pick up where they left off.
Sandeep is a journalism and mass communication graduate with a keen interest in politics and business. He is a part of Research & Content team at HrNxt.com.