Furlough Versus Layoff: What’s The Difference?

More than 22 million Americans filed for unemployment benefits over the last month, as scores of businesses scaled back their workforce in response to the COVID-19 pandemic.

Unfortunately, some of our clients and their family members are among those suddenly sidelined. We’re helping them adjust to the new reality and make the financial accommodations called for by the evolving environment.

One of the questions we’re frequently being asked is what exactly is the difference between a furlough and a layoff, and what does it mean for you if you’re subject to one or the other?

A furlough is typically a temporary, unpaid leave of absence from work. The worker is sent home without pay, but may be called back when business conditions improve. We’ve read recently about many large retailers and hospitality companies who have furloughed thousands of workers as workplaces have shutdown due to the COVID-19 pandemic. Many businesses prefer furloughs because it lets them recall experienced workers quickly if demand perks back up.

Furloughed employees are free to apply for unemployment benefits, including the CARES Act enhanced benefits. “Any full-time or part-time worker who is furloughed, laid off or had their hours reduced due to the coronavirus is eligible for expanded unemployment benefits,” writes Marketwatch. Most importantly, furloughed employees typically keep their health and retirement benefits, often partially or fully paid for by the employer.

In contrast, when a worker is laid off by an employer, it’s usually a permanent discharge. Although the worker is eligible for unemployment benefits, just like with a furlough, health insurance and other workplace benefits are typically cut off. If the worker opts to continue health benefits under COBRA, which permits an 18-month extension, she has to pay for the full cost of coverage entirely out of her own pocket without help from the employer.

That’s a big deal. Employers normally cover 70% of health care costs, leaving only 30% or less up to the employee. With the average yearly family health coverage costing over $15,000 in 2020, being forced to pick up the entire health bill is a major blow to newly-unemployed workers.

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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