Weighing Out Options in a Tough Economy - Layoff or Furlough

In 2022, employers announced plans to cut 363,824 jobs. 

As the global economy continues to face challenges, many companies are left with tough decisions about their workforce. In particular, the question of whether to lay off employees or furlough them has become a critical issue for many companies. 

This article will discuss what furlough means and explain the differences between layoffs and furloughs. We will also explore why a company might furlough or lay off employees and examine the current layoff trend across industries.

What does furlough mean?

A furlough is a mandatory but temporary leave of absence without pay. Essentially, it indicates that an individual is still employed but is not actively working or earning a wage.
Employees may be able to keep their health insurance coverage while on furlough, but they usually do not earn vacation time or other perks.

Layoffs and furloughs are both methods that companies use to cut labor costs, but they differ in significant ways. 

Unlike the definition of furlough, layoffs aren't temporary — they are permanent terminations of work. When a company lays off an employee, the termination is typically permanent, and the individual must reapply for the job if a new position becomes available. In contrast, when a company furloughs an employee, the expectation is that the employee will eventually return to work when business picks up.

Why furlough employees?

A company may choose to furlough employees as a cost-saving measure during economic uncertainty or when facing a temporary downturn, especially if there's hope that the company will make it out of the slump. 

Furloughs allow a company to retain its skilled workforce and avoid the costs associated with rehiring and training new employees. Additionally, furloughs may help maintain morale and lessen the danger of negative publicity connected with mass layoffs.

How long is a furlough?

The length of a furlough can vary, depending on the company's specific circumstances. Depending on the company's needs and financial situation, furloughs may be for a few weeks or several months. It can also happen more than once. 

Overall, the average furlough length is three weeks. But in some cases, furloughs may be extended or made permanent if the company's situation does not improve.

Is being furloughed the same as being unemployed?

Being furloughed is not the same as being unemployed. When a person is unemployed, they are no longer employed by that company and are typically actively seeking new employment. On the other hand, Furloughed employees are still employed by the firm, and their job may still be waiting for them when they return from furlough.

From the above, a furlough seems to be a gentler way to let employees go during an economic downturn, and as such, it should be popular amongst companies. However, recently, we've witnessed some of the largest employers of labor lay off thousands of employees to survive. Most of these layoffs have come from the tech space, with companies like Cisco and Stripe cutting their workforce in the thousands.

In December 2022, the tech industry saw 16,193 layoffs, making it the largest sector in terms of layoffs. Overall, tech firms slashed more than 97,000 jobs in 2022, an increase of 649% over the previous year's 13,000 job cuts, according to outplacement firm, Challenger, Gray & Christmas.

Significant tech layoffs include Microsoft's 10,000 jobs cut in January and Google's 6% layoff of both pandemic-hired and veteran employees via email.

Will layoffs spread beyond the tech industry?

The trend of layoffs is not limited to any specific industry but is widespread across various sectors. During the pandemic, the hospitality, travel, and entertainment industries were hit particularly hard, with many companies implementing mass layoffs to reduce costs and stay afloat.

However, layoffs are not exclusive to these industries; companies in other sectors have also implemented massive layoffs, especially in light of this year's possible economic recession.

Other sectors also experiencing layoffs include the automotive industry, which has been hit by the global chip shortage, interest rate hikes, and global supply chain concerns. As a result, many companies have been forced to shut down production in underutilized branches or reduce output temporarily. 

Ford, for instance, announced in 2022 that they plan to cut about 3,000 jobs. And according to a company email addressed to staff, this will impact both paid employees and contract workers. Other auto giants joining the layoff train include Stellantis and Rivian.

In fact, Challenger reports indicate that the automobile industry shed 31,000 jobs last year, the second-highest industry number in the United States.

The retail industry is also seeing layoffs, with major companies like Shopify and Amazon announcing significant job cuts in recent years.

Are widespread layoffs coming?

While it's difficult to predict the future with certainty, there are indications that the layoffs may continue in 2023. 

According to the survey by ResumeBuilder, 61% of business leaders predict layoffs in their businesses in 2023. Moreover, 57% of company owners who believe layoffs are probable expect that 30% or more of their workers will be laid off by 2023.

"The overall economy is still creating jobs, though employers appear to be actively planning for a downturn. Hiring has slowed as companies take a cautious approach entering 2023," opines Andrew Challenger, senior vice president of Challenger, Gray & Christmas.

The potential for layoffs in 2023 remains high, with many business leaders and owners anticipating workforce reductions in the coming year. While the overall economy is still growing, there is a cautious approach among employers as they prepare for potential economic uncertainty. As the year progresses, it will be necessary for both businesses and employees to remain vigilant and adaptable to changing circumstances in the job market.

Layoff or furloughs: Which is better for a distressed company?

The answer to this question depends on the specific circumstances of the company. 

Furloughs may be a better option if the company is experiencing a temporary downturn and wants to retain its skilled workforce. Furloughs allow companies to avoid the costs of rehiring and training new employees and maintain morale within the workforce. It also helps them hit the ground running when the business stabilizes. 

However, if the company is experiencing a long-term decline or restructuring, layoffs may be a more viable option to reduce costs and streamline operations.

For organizations struggling or taking measures during a terrible economy, the decision between layoffs and furloughs should be based on a detailed review of the company's financial status and long-term goals. 

Furloughs may help a company retain its skilled workforce during a temporary downturn but may not be enough to address long-term financial issues. On the other hand, layoffs may be a more practical solution in addressing long-term financial issues but may come at the cost of losing skilled employees.

During the pandemic, many companies opted to furlough employees instead of laying them off to keep their workforce intact while weathering the economic downturn. For instance, Disney furloughed tens of thousands of employees in 2020, offering health benefits and other support during the furlough period. 

In contrast, companies like Meta and Google have recently announced layoffs as part of restructuring efforts. Meta announced layoffs of 11000 employees in November, citing declining revenue and unfavorable market forecasts. Other prominent layoffs include Musk's 3,700 Twitter employee cut, about half the staff, offering them Musk also offered them three months of severance.

These differences in approach reflect companies' varying circumstances, with some needing to make more drastic cuts to address long-term financial issues.

How to handle mass layoffs 

If layoffs are unavoidable, employers must carefully consider how to choose the workers who will be let go. They must also document the company's business justifications for the decisions and the standards used to select which workers (or what groups of workers) will be affected by the layoff.

Companies considering layoffs must follow their current employee policies as well as federal and state regulations requiring employers to provide employees early notice of closure.

However, in any scenario, your employees bear the brunt of a layoff or furlough. The likelihood of acquiring a new health issue increases by 83% for healthy workers without pre-existing diseases in the first 15 to 18 months following a layoff. Some of the most common conditions include arthritis, hypertension, and cardiovascular diseases.

Employers must consider ways to maintain the trust they have earned from their staff. You can emphasize that the choice has nothing to do with the abilities of the impacted employees and help laid-off employees apply for unemployment benefits. Or help cover certain dismissal costs.

Alternatives to layoffs and furloughs

Before making the drastic decision to lay off your employees, you must analyze your alternatives and make fair judgments for your employees and your organization.

Other alternatives to layoffs and furloughs include:

• Reductions in employee 401(k) match
• Delays in paying retirement benefits
• Salary cuts
• Cutting Work Hours and Pay in Proportion
• Relocating staff to busier departments

An astute company will ordinarily explore the mentioned options before cutting its employee size and losing vital employees to rivals.

Layoff or furlough: You decide

In conclusion, the decision between layoffs and furloughs depends on a company's specific circumstances and long-term goals. While layoffs have become more prevalent across various industries, furloughs may still be a viable option for some companies experiencing temporary downturns. It is essential for companies to consider the impact of their decisions on employees and their communities and offer support during these challenging times.