What’s the difference between furlough and layoffs?

With each passing week, predictions for the number of workers who will face a furlough or a layoff because of the novel coronavirus pandemic grow larger and larger.

The Economic Policy Institute on Wednesday estimated nearly 20 million U.S. workers could lose their jobs by summer because of closures and other impacts from the outbreak. Colorado could lose a stunning 369,268 jobs and face a 14.1% unemployment rate by July compared to a 2.5% unemployment rate in February.

Many of those losing their jobs are young adults in service jobs who probably haven’t been employed during an economic downturn. They may not understand the difference between a furlough and a layoff.

A furlough happens when an employer stops paying workers with an intention to bring them back to work once conditions improve. They show that commitment by continuing to pay benefits like health and life insurance premiums. The reduction in hours may be partial, but often it is a full suspension in pay.

“With a furlough, the idea is that it is a temporary arrangement. Workers will be able to return to their jobs,” said Chris Lamb, an attorney specializing in employment law at Fortis Law in Denver.

A layoff is a more severe breakup. An employer is saying it can no longer afford to pay either wages or benefits. And while they may want that worker back, they are effectively cutting ties.

“In so many ways, furloughing is the better option for companies, better for individual workers and better for the country,” said Andrew Challenger, a vice president with job placement firm Challenger, Gray and Christmas in Chicago.

The federal government seems to think so too. The Payroll Protection Program in the CARES stimulus package allows struggling businesses to borrow money. If they use some of that money to pay benefits to furloughed workers, the loans will be forgiven.

Whether they are laid off or furloughed, workers can still receive unemployment benefits, which the stimulus package also boosted. The average unemployment benefit runs $400 a week in Colorado, but the federal government will add another $600 a week to it. Some displaced workers may find themselves making more not working than they did working.

At some point, the outbreak will taper and restrictions will lift. Businesses that keep workers attached to their jobs, even if it is by a slender thread, can bounce back faster once restrictions on activities lift, both Challenger and Lamb said.

And if things take a turn for the worse? It is likely that many furloughs will turn into layoffs.

Employees tend to understand why an economic disruption costs them their jobs, Lamb said. What could prove harder for them to process psychologically this time around is why their employers chose to go with a layoff rather than a furlough, even when the government was willing to cover the costs of benefits.

A business that cuts off health insurance benefits during a pandemic runs the risk of being viewed as financially desperate, making them a poor candidate to recover, or so indifferent and callous to the fate of their workers that they really aren’t worth being associated with if there is any other option.

Before 2000, recessions came more frequently and tended to be less severe. Manufacturers, in particular the big automakers, would let workers go and bring them back when conditions improved. Those were technically furloughs but often described as layoffs. Either way, they were intended to be temporary.

But over the past 30 years, economic cycles got more stretched out and the strength of the bond between employers and employees grew more frayed, to the point that Wall Street rewarded companies that dumped workers.

When layoffs occurred the past decade, they were pretty much permanent, although furloughs did make a brief comeback during the Great Recession.

Lamb said an economic expansion that stretched nearly 11 years may have lured younger workers into a false sense of security. If they didn’t like working at one restaurant or retailer, there was always one down the street more than happy to hire them.

The crisis could force them to seriously reconsider what path their careers should take, and who they should attach themselves to, she said.

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