Unfortunately, there may come a time that an owner needs to reduce costs by reducing the level of staffing. Making that decision is certainly a difficult one, but next comes the choice of which route to go – a furlough, a layoff, or a reduction in force (RIF). Following are the differences between the three:
A furlough is a temporary reduction in hours worked by an employee or group of employees that results in lower payroll costs. An employer may reduce hours in a week from 40 to 32 hours, for example, resulting in a reduced payroll across the entire (non-exempt) staff. The employer may also require employees to take a specified chunk of unpaid time off. Exempt staff must maintain their status from a FLSA standpoint, which is usually done by asking them to take off entire weeks at a time. During a furlough, benefits are typically maintained, and the workforce expects to return to their normal status in the future.
By contrast, a layoff is a termination or separation in employment with or without an intent to be recalled. Layoffs are normally done in environment where there is not enough work to maintain the number of staff on payroll. A person who has been laid off can rest assured that it was done without any fault of the employee. Employees experiencing a lay off may be able to be covered by benefits for a short time, depending on the benefit provider, especially if the employer expects to recall those employees.
Reduction in Force (RIF)
A RIF is a permanent reduction in headcount. This occurs when the employer determines that it must reduce the number of employees in a department or across the company permanently, with no intention to rehire. In some cases, a layoff with intent to rehire can become a RIF is those layoffs are made permanent.
Using the correct terminology is important when communicating your intentions, responding to claims for unemployment, and knowing your obligations as an employer under the WARN act. As in all situations where employee wages, benefits, and continued employment come in, it is important to have a cohesive plan including HR and legal counsel, and the execute it fairly to avoid claims of discrimination or retaliation. Bringing employees back to work following a furlough or layoff should also be well thought out, in order to preserve as much equity as possible.