Furlough vs layoff: How to lead with empathy, preserve engagement, and protect culture

Imagine hitting pause on a favorite movie—not because you want to, but because there’s a power outage. You know the story isn’t over, but you’re stuck in limbo, waiting. That’s what a furlough can feel like. Now imagine the movie suddenly stops, screen goes black, and you’re told that’s the end. That’s a layoff.

Both disrupt the experience—but the way you deliver that disruption? That’s what your people will remember.

Economic downturns and strategic shifts happen. But how you communicate tough decisions like furloughs and layoffs can either protect or fracture your company culture. It’s not just about policies and logistics. It’s about being human—leading with empathy, offering clarity, and keeping your team’s trust intact even when the future feels uncertain.

In this blog, we’ll break down the key differences between furloughs and layoffs—and share actionable ways to navigate both while preserving engagement and dignity across your organization.

What is a furlough?

A furlough is a temporary, unpaid leave of absence (unlike accrued paid time off) that employers impose on employees—often due to financial constraints, seasonal slowdowns, or unexpected crises. Unlike a layoff, it doesn’t end the employment relationship. The employee stays on the books, keeps their benefits (in many cases), including the ability to receive health benefits, and is expected to return to work once conditions improve.

To define furlough simply: it’s a cost-saving strategy that ensures employees don't receive pay while staying employed. Think of it as hitting the “temporary pause” button on someone's job without deleting them from the playlist.

Common during economic downturns—like the 2008 recession or the COVID-19 pandemic—furloughs allow companies to retain skilled workers without the long-term impact of layoffs. For employees, this means job assurance (kind of), but with temporary income loss and a big dose of uncertainty.

Understanding what is furlough—and how it differs from a layoff—is critical for leaders trying to preserve both talent and culture. It may not be ideal, especially concerning compliance with the fair labor standards act but when handled transparently, it can be the least damaging option in a tough spot.

How does a furlough work?

So, you've heard the term furlough tossed around, but how does it actually play out in real life? It’s more than just sending people home. A furlough involves careful planning, clear communication, and a bit of legal navigation. Here’s how the process typically works:

• Identifying the need for cost reduction: Furloughs usually begin with a business need—declining revenue, budget cuts, or operational pauses. Employers weigh their options and decide that reducing payroll costs temporarily (without losing employees permanently) is the most viable route.
• Selecting employees for furlough: Not every role is eligible or appropriate for furlough. Companies typically evaluate which departments or positions can be paused without disrupting critical operations. The selection must be fair, nondiscriminatory, and legally sound to avoid compliance risks.
• Notifying employees: Once employees are selected, they’re formally notified—usually in writing. The communication outlines the furlough length, terms (e.g., no work during furlough), and information about benefits continuation. Transparency here can ease anxiety and help maintain trust.
• Adjusting pay and benefits: During furloughs, employees are generally unpaid, but many retain healthcare and other benefits. Some may also receive unemployment benefits, depending on local laws and the specifics of their furlough arrangement.
• Planning for reinstatement: Furloughs are designed to be temporary, so employers must have a strategy to recall workers. This includes communicating return dates, reactivating systems, and preparing for a smooth reintegration—ideally without awkward surprises.

What is a layoff?

Employee layoffs is the termination of an employee's position by the employer, typically for reasons unrelated to performance. It’s often driven by financial challenges, restructuring, downsizing, or elimination of roles. Unlike a furlough, a layoff is considered permanent—there’s no implied promise of return, and the employment relationship officially ends, including pay and most benefits.

Layoffs are tough, business-driven decisions that separate workers from their jobs due to circumstances beyond their control. They’re often accompanied by severance packages, final paychecks, and formal offboarding. While some layoffs are temporary in nature (with potential rehires down the line), especially for hourly workers, most are final, requiring rehiring from scratch if business conditions change.

From a company’s perspective, layoffs are usually about long-term cost savings or structural change. But from an employee’s perspective, being laid off can feel sudden, disorienting, and deeply personal—even if it’s communicated clearly.

It’s important to distinguish layoffs from being fired. Being fired is performance-based; a layoff is not. The language, legal implications, and emotional weight are different, which is why communicating it with clarity and compassion is crucial, particularly to comply with the Equal Employment Opportunity Commission guidelines.

Understanding what a layoff is—and how it differs from a furlough—helps leadership navigate tough calls while preserving dignity, trust, and as much morale as possible during an already difficult time.

How does a layoff work?

Layoffs aren’t as simple as sending out a goodbye email. They involve a series of structured steps to ensure the process is legal, fair, and as humane as possible. When handled thoughtfully and with legal counsel, they can soften the blow and preserve long-term relationships and reputation.

• Assessing business needs and workforce impact: Leadership first reviews financials, forecasts, and operational structures. If layoffs are unavoidable, they identify which roles—rather than specific people—can be eliminated without compromising essential functions.
• Selecting impacted employees: HR and management collaborate to determine which employees will be affected. This step must follow a clear, unbiased process using objective criteria such as seniority, skill redundancy, or department reorganization—avoiding discrimination at all costs.
• Preparing for communication: Before telling employees, companies draft layoff notices, finalize severance details, and coordinate internal communication. Messaging is key here—it needs to be direct, respectful, and considerate, especially if the goal is to maintain trust with those staying behind.
• Conducting layoff conversations: HR and managers meet with affected employees—usually one-on-one—to explain the decision. They review timelines, severance, COBRA, or benefits info and answer any immediate questions. The tone during this moment matters just as much as the content.
• Supporting the transition: Good employers don’t just cut ties—they offer career transition support like outplacement services, résumé coaching, or references. This shows integrity and helps soften the emotional and professional impact on the laid-off employee.

Pros and cons of furloughing employees

Furloughing employees isn’t a perfect solution, but in many cases, it’s the gentler option when companies face financial turbulence. It offers temporary relief without severing ties, but it also comes with risks. Here’s a quick look at the upsides and downsides.

Pros of furloughing employees

• Retains talent for future needs: Since furloughs don’t end the employment relationship, businesses can bring back trained staff quickly once operations bounce back—saving time, costs, and effort on rehiring.
• Maintains employee benefits: In many cases, employees on furlough can keep their health benefits, which offers them some stability during uncertain times and shows the employer still values them.
• Eases the financial burden on the business: Furloughs help reduce payroll expenses temporarily, giving companies a chance to stay afloat while avoiding mass layoffs that could hurt morale and reputation.
• Demonstrates intent to rehire: It sends a message that the company intends to recover and values its workforce—an important cultural and psychological signal to both employees and external stakeholders.

Cons of furloughing employees

• Creates financial stress for employees: Since furloughed workers aren’t paid, many may struggle to cover basic expenses, even if they qualify for unemployment benefits.
• Risk of losing employee engagement: Extended furloughs can leave employees feeling disconnected, forgotten, or unmotivated—especially if updates are infrequent or vague.
• May cause confusion or legal issues: Improperly handled furloughs—especially if employees work during unpaid leave—can lead to compliance issues or lawsuits, particularly with exempt workers.
• Doesn’t solve long-term financial issues: Furloughs are short-term fixes. If the company’s financial situation doesn’t improve, they might eventually need to lay off workers anyway—adding stress and complexity to the situation.

Pros and cons of laying off employees

Laying off employees is a difficult but sometimes necessary decision for long-term business stability. While it’s often seen as a last resort, there are moments when layoffs, especially due to plant closings, can help companies reset and realign. That said, they come with significant consequences—both emotional and operational, particularly in the context of a reduction in force.

Pros of laying off employees

• Reduces long-term financial burden: Unlike furloughs, a company layoff of salaried employees permanently removes positions from the payroll, giving companies a clearer and more immediate path to financial recovery or restructuring.
• Provides clarity and closure: Employees know where they stand—there’s no “wait and see.” Layoffs give a clean break, which can help both the business and the individuals move forward without lingering uncertainty.
• May come with severance or support: Many companies offer severance packages, career counseling, or outplacement services. These soften the blow and can preserve the employer’s reputation even during tough times.
• Enables restructuring or innovation: Layoffs can help organizations pivot, restructure, or reallocate resources to more strategic initiatives without being tied to outdated staffing models.

Cons of laying off employees

• Loss of skilled talent: When someone is laid off, all their institutional knowledge and training leave with them. This creates skill gaps that may be hard or costly to fill later.
• Damages morale and trust: Layoffs can trigger survivor’s guilt, fear, and disengagement among remaining staff—making it harder to maintain productivity or a positive work culture, especially among exempt employees.
• Hurts employer brand: Frequent or poorly handled layoffs can tarnish a company’s image, making it harder to attract future talent or retain top performers.
• Legal and compliance risks: Layoffs must follow specific laws (like the WARN Act or anti-discrimination rules). If handled incorrectly, they can result in lawsuits, audits, or public backlash.

What’s the difference between a furlough and a layoff?

Furlough and layoff are both methods for handling workforce reductions, but they differ in terms of permanence, impact, and intent. Here’s a breakdown to help you understand the key differences between furloughs and layoffs :

Communicating workforce decisions without breaking trust

Communicating workforce decisions, like layoffs or furloughs, requires careful thought and empathy. Done right, it can preserve trust and respect; done wrong, it can break down relationships and harm morale. Here are the key strategies to communicate these tough decisions without losing trust.

1. Be transparent and honest

Employees deserve to know the why behind workforce decisions. Offering clear, honest explanations about the company’s financial status, restructuring plans, or external challenges helps prevent misinformation and reduces anxiety. Transparency shows you respect your employees' intelligence and helps them understand the necessity of tough decisions.

2. Act with empathy and respect

It’s important to acknowledge the emotional impact of such decisions. Approach these conversations with compassion and understanding, recognizing that layoffs or furloughs can create significant stress. Demonstrating empathy reassures employees that their well-being is a priority, even when their job security is uncertain.

3. Offer support and resources

When communicating these decisions, be prepared to offer resources for the affected employees. This could include severance packages, job placement services, or mental health support. Providing tangible help shows that the company cares about the future success of its employees, even if they won’t be staying with the organization.

4. Keep the lines of communication open

Clear communication shouldn’t end with the announcement. Regular check-ins, follow-up conversations, and open forums for questions or concerns help employees feel heard and supported throughout the process. Continuous dialogue fosters a sense of security, making employees feel more connected to the company during uncertain times.

5. Be timely and proactive

Waiting too long to communicate workforce decisions only increases anxiety. Employees often imagine the worst when kept in the dark. As soon as a decision is made, share the news promptly and professionally. Acting quickly prevents rumors and confusion, allowing employees to process and plan their next steps.

Keeping furloughed employees connected to the culture

Furloughs can create a sense of disconnection for employees, making it harder to maintain the workplace culture. Keeping furloughed employees engaged and connected to the company culture is vital for morale and ensuring a smooth transition when they return. Here are five strategies to keep them involved during this time, especially focusing on how an exempt employee works.

• Maintain regular communication: Even though furloughed employees aren’t working, it’s important to keep them in the loop. Regular check-ins, company updates, or virtual town halls can help them feel connected to the company’s progress. This shows that the company values them, even if they’re temporarily not contributing.
• Encourage involvement in virtual social events: While furloughed employees may not be working, they can still participate in virtual social events. Hosting online coffee chats, team-building activities, or happy hours can foster a sense of camaraderie and belonging. These informal interactions remind employees that they are still part of the team.
• Offer learning opportunities: Offering furloughed employees access to training, webinars, or personal development courses helps keep them engaged and productive. It shows that the company cares about their professional growth and values their time, even if they’re not currently working.
• Celebrate milestones and achievements: Recognize furloughed employees on special occasions, like birthdays or work anniversaries. Acknowledging milestones keeps them feeling included and reminds them that they are still a valued part of the team, even while on leave.
• Request their input and feedback: Ask furloughed employees for feedback on company processes or culture. Involving them in decision-making or getting their opinions on how the company can improve makes them feel valued and helps maintain a connection to the company, even if they aren’t actively working.

How to decide whether to furlough or lay off employees?

Deciding whether to furlough or lay off employees is a challenging decision that requires careful consideration of various factors. While both are methods for reducing workforce costs, they have different impacts on employees and the business. Here are the key factors to consider when making this decision.

• Financial outlook and recovery timeline: If the company anticipates a swift recovery, furloughing employees might be more appropriate, as it allows them to return when conditions improve. Layoffs are better suited for situations where recovery is uncertain and the company needs to cut long-term costs.
• Impact on company culture: Furloughs help maintain employee connection and morale, as workers expect to return when business picks up. Layoffs, on the other hand, can cause permanent damage to employee trust and morale, disrupting company culture in the long run.
• Legal and regulatory considerations: Furloughs may require fewer legal steps and are often easier to manage from a compliance standpoint. In contrast, layoffs often come with severance obligations, unemployment claims and require adherence to labor laws, making them more complex to execute.
• Employee engagement and long-term needs: Furloughs can keep employees engaged by maintaining their status and receive benefits, making them more likely to return after a temporary dip in business. Layoffs can damage employee loyalty and engagement, as permanent job loss may lead to a loss of trust.
• Operational requirements and flexibility: Furloughs provide flexibility, allowing the company to reduce costs without losing employees. However, layoffs are necessary when the business must permanently reduce staff due to business closures, downsizing, or a major shift in operations.

How should HR handle a furlough vs layoff?

Handling a furlough or layoff requires HR to approach each situation with empathy, clear communication, and a well-structured plan. The strategies may differ depending on the type of layoffs and furloughs, but the core principle of treating employees respectfully remains the same. Here are seven key points for HR to consider when managing furloughs vs layoffs.

1. Understand the company’s financial situation: HR should first assess the company’s long-term financial outlook to determine whether furloughs or layoffs are necessary. If recovery is expected, furloughs might be more suitable, but if cuts are permanent, layoffs should be the focus.
2. Provide clear communication and transparency: No matter the decision, HR must clearly communicate the reasons for the furlough or layoff. Employees need to understand the financial or operational reasons behind the decision to minimize confusion and prevent rumors.
3. Offer support and resources: For furloughed employees, HR should explain benefits, expectations, and timelines for their return. For those facing layoffs, offering severance packages, outplacement services, and emotional support can ease the transition.
4. Ensure compliance: HR needs to follow all legal requirements for both furloughs and layoffs. This includes proper documentation, severance pay, and benefits continuation for layoffs, as well as ensuring that furloughed employees' rights are respected during their time away.
5. Maintain regular communication: For furloughed employees, ongoing communication is critical. HR should check in periodically to update them on the company’s status and potential return dates. For those laid off, HR should provide resources for job hunting and networking.
6. Manage the impact on company culture: HR should be mindful of the emotional impact on both furloughed and laid-off employees. Fostering empathy and open channels of communication helps preserve trust within the organization.
7. Plan for re-entry or transition: For furloughed employees, HR should have a plan for reintegration, including clear timelines, updates on company performance, and any necessary training or worker adjustment. For layoffs, HR should focus on exit strategies, making sure the process is smooth and respectful.

How to rehire furloughed employees?

Rehiring furloughed employees can be a delicate process that requires thoughtful planning to ensure a smooth transition. After a period of uncertainty, it’s crucial to manage the return of furloughed employees in a way that maintains trust and engagement. Here are the key steps to follow when bringing furloughed employees back into the fold.

• Assess business needs and roles: Before rehiring, HR should assess the company's current needs and which roles are necessary to resume business operations. This ensures that employees are brought back into positions where their skills are most needed and can contribute effectively.
• Communicate clear expectations: Furloughed employees should be informed of the company’s recovery progress and the role they will play upon their return. Setting clear expectations about job responsibilities, changes in work processes, and any new company policies will help prevent confusion.
• Provide support during the transition: Employees may experience anxiety about returning to work after being furloughed. HR should offer support by addressing concerns, providing any necessary training, and ensuring they have the tools and resources needed to perform their jobs.
• Recognize and re-engage employees: Employees returning from furlough may feel disconnected from the company’s culture. HR should actively work to re-engage them by acknowledging their contributions, reinforcing company values, and integrating them into team-building activities to boost morale.
• Monitor employee well-being and performance: Once rehired, HR should continue to monitor the well-being and performance of furloughed employees. Regular check-ins and feedback sessions will help identify any challenges they face during the transition and ensure they feel supported in their new work environment.

Furloughs & layoffs as culture moments: How HR can turn pain into purpose

Furloughs and layoffs can be some of the most challenging moments for any organization, but they also offer a unique opportunity for HR to reinforce the company’s values and culture. While these situations are undoubtedly tough, HR can turn them into moments of purpose by focusing on empathy, communication, and long-term engagement. Here’s how HR can transform these painful experiences into powerful cultural moments.

1. Lead with empathy and transparency

HR must approach furloughs and layoffs with empathy and openness. Honest, compassionate communication helps employees feel respected, even in difficult times. By explaining the reasons behind decisions and being transparent about next steps, HR can build trust and loyalty, even in challenging circumstances, particularly for non-exempt status employees who may face additional challenges.

2. Strengthen employee connections

During furloughs or layoffs, it’s important to keep employees connected to the company culture. HR can organize virtual events, engage employees in company updates, or highlight employee contributions. These actions help maintain a sense of belonging, ensuring that employees still feel like part of the organization, regardless of their work status.

3. Focus on long-term vision and resilience

HR can use furloughs and layoffs as opportunities to remind employees of the company’s long-term goals and resilience. By focusing on the bigger picture and the steps the company is taking to rebound, HR can inspire a sense of purpose and commitment among both those affected and those remaining.

4. Celebrate adaptability and teamwork

During these tough times, HR can highlight and celebrate the adaptability of the workforce. Recognizing employees who go above and beyond, whether they are working or temporarily away, reinforces the importance of teamwork and commitment to the company’s values, despite the hardship.

5. Emphasize the importance of employee well-being

HR should use these moments to prioritize employee well-being. Offering mental health support, career counseling, and resources for future opportunities not only supports employees during the transition but also demonstrates the company's ongoing commitment to its workforce, even in difficult times, and includes coordination with benefits administrators.

Significance of employee retention software in deciding between furlough and layoff

Employee retention software can help HR teams make more informed decisions when navigating between furloughs and layoffs. By providing valuable insights into employee engagement, performance, and turnover risk, it allows for better decision-making and ensures a fairer process. Here are five key ways retention software influences this decision.

• Tracking employee engagement: Retention software helps HR track how engaged employees are with the company. This insight allows HR to prioritize keeping highly engaged employees, minimizing the risk of layoffs or unnecessary furloughs.
• Identifying turnover risks: Predictive analytics in retention software highlight employees at high risk of leaving. This allows HR to focus on retaining key talent rather than laying off or furloughing employees who may already be disengaged.
• Evaluating performance: Employee performance data from retention software helps HR assess which employees have the most value to the company. It enables HR to decide whether to furlough or lay off based on an employee's role and contribution.
• Personalizing decisions: Retention tools provide detailed employee insights, helping HR understand their needs. This data can lead to more personalized and thoughtful decisions on furloughs and layoffs, addressing specific concerns.
• Enhancing communication: Retention software allows HR to communicate effectively with employees. It ensures timely updates, helpful resources, and consistent support during furloughs or layoffs, reducing uncertainty and maintaining trust.

Conclusion

In times of difficult decisions like furloughs and layoffs, it’s crucial to handle the process with empathy, transparency, and strategic insight. HR plays a pivotal role in ensuring that both the workforce and company culture are preserved, even during challenging moments.

Using tools like employee retention software can significantly help HR make informed, fair decisions that benefit both the organization and its employees. By maintaining open communication, offering support, and focusing on long-term employee engagement, HR can transform these painful experiences into moments of growth and resilience.

If you’re looking to strengthen your company’s culture and make better workforce decisions, consider exploring CultureMonkey—a powerful tool that helps organizations gather employee feedback, improve engagement, and navigate workplace challenges.

FAQs

1. How long can a company furlough an employee?

The duration of a furlough typically depends on the company’s financial situation and business needs. While there are no federal limits, the furlough should be temporary and should not exceed several months. If the furlough lasts too long, employees may be at risk of being laid off. Employers should communicate timelines clearly and adjust based on business recovery.

2. Why would a company furlough instead of lay off?

Companies may opt for furloughs instead of layoffs to retain their workforce while reducing costs. Furloughs allow businesses to temporarily reduce work hours or close operations without severing ties with employees. This helps businesses avoid losing skilled workers and can be a strategic move to keep talent in place for recovery once the company’s financial situation improves.

3. Is furlough the same as being laid off for unemployment?

Furloughed employees may be eligible for unemployment benefits, but they are not technically laid off. A furlough is a temporary leave of absence where the employee is expected to return once the company’s situation improves. In contrast, a layoff is more of a permanent termination, and employees may not be recalled. Unemployment eligibility depends on local laws and specific employment contracts.

4. How can HR maintain morale during layoffs?

HR can maintain morale during layoffs by providing clear communication, offering support services like career counseling, and acknowledging the emotional impact, particularly for those who may need to collect unemployment after layoffs. Ensuring that affected employees feel respected and valued helps minimize feelings of resentment. For those remaining employees, HR should emphasize the company’s vision for recovery.

5. Can a furlough turn into a layoff?

Yes, a furlough can turn into a layoff if the company’s financial situation does not improve or if business conditions worsen. While furloughs are intended to be temporary, if the economic downturn continues, the company may need to make permanent workforce reductions. Employers should keep furloughed employees informed about potential changes and clarify whether their furlough could evolve into a layoff.