Plan Insurance Blog

The Difference Between Furloughing and Laying Off

Furlough and laying-offs Employees, What should you consider?

With uncertainty over how long both the current Covid-19 crisis and the Government’s job prevention scheme will last, business owners will continue to face challenging employment based decisions in the coming weeks and months. Employees will certainly not want to lose their jobs and having invested time and money (as well as emotionally in most cases) in them, employers will want to avoid losing good staff if at all possible. So businesses will no doubt be doing everything they can to prevent downsizing or prolonged closures.
However, due to the financial impact of something as significant and sudden as this pandemic, avoiding a reduciton of resource levels of some kind will be outside of most business’s control. Many companies do not have the option of facilitating employees to work from home and some have been ordered to close by the UK government, which could lead to businesses like yours having to make tough decisions.
Its likely that your firm is eligible for some wage compensation under the Coronavirus Job Retention Scheme due to the commercial effect that COVID-19 has had on your business. To get more information on this scheme, visit the website –
The Government’s job prevention scheme introduced a new word into many people’s vocabularies in the form of, furlough. Before the Chancellor announced the Government’s initiative many companies were probably considering the possible need to lay staff off. Its possible that the Treasuries ability to assist businesses via the offering of furlough payments might fall short of the duration of the pandemic’s impact. In which case, as unappealing a prospect as it might sound, the possibility of laying off staff could need to be reviewed again.

Whats is the Difference Between Furloughs and Lay-Offs?

A Furlough is a period where employees are not working nor being paid. Employees are put on temporary unpaid leave until the business re-opens. Depending on circumstances (and potential contract stipulations), employees may even be allowed to work for other businesses while on furlough.
As mentioned a furlough is a temporary arrangement, however, a lay-off is permanent. Lay-offs are generally mass sackings of employees, caused by a need to cut expenses to save a business and they are typically not due to staff performance.
What are the Pros and Cons?
As drastic as it sounds, laying off staff might at first seem like the more appropriate option if your over-riding need is to save money. However, depending on circumstances it might not be the best decision for everyone.
Why not consider these pros and cons when looking at what is best for your business:

  • Laying off larger numbers of employees would lead to recruiting and training a similar number of people  if demand returns to normal levels once the ordeal is over. This can be extremely costly and very time-consuming.
  • Furloughing some staff enables employers to keep a ‘rotating’ timetable, where everyone has reduced hours instead of only a few having full hours.
  • Lay-offs can immediately free up money from not making salary payments.
  • Furloughing staff can enable businesses to resume operations much quicker once the situation changes.
  • Furloughed staff may resent the business if they do not get any compensation over this period. This could lead to disgruntled workers, who when they return may not be eager to be productive

Its worth noting that the Government’s job prevention scheme has specific rules and criteria that you will need to adhere to should you opt to utilise it and claim reimbursement for the cost of furloughed staff under it.
How to Make a Decision?
Decision makers will have to act based upon what is best for their business, even if that could unfortunately means needing to lay-off employees. Therefore, a business should handle this situation with sensitivity and consideration. To help deal with this potentially tough decision, here are some tips:

  • Create and Develop a plan:

Should you be furloughing or a laying-off, businesses must decide how they will handle various outcomes and be prepared. Which could be anything from dealing with limited staff or something more severe.
Also, businesses should try and be as accommodating as possible. If only some employees must be furloughed, it might be worth considering a rotation as a more impartial decision.

  • Be honest communicate:

Regardless of what your business chooses, being transparent with your communication is crucial.
Let your staff know that the situation is not a result of anything they’ve done and they should also know that the situation is due to factors outside of the businesses control, not mismanagement.

  • Make Sure You Keep in Touch with Furloughed Staff:

Staff on furlough should not conduct any work whatsoever. However, that does not mean you can’t stay in contact with them, so make sure either you, their supervisors or your HR team (if you have one) are keeping in touch with the staff member(s) in question.
Engagement should be encouraged to help workers maintain a sense of normality. Using email or other messaging services, to keep workers updated on the status of the business and when to expect resumed operations is also advised.

Are there any Legal considerations?

Firstly, we would recommend businesses should consult a qualified professional before taking any action with their employees, as it is important businesses ensure that they comply with all applicable UK employment laws. For example, you should keep the following regulations in mind:

  • Employment Rights Act 1996

Furloughed staff under this law have the same rights as they would in the workplace. Which, includes maternity and parental rights, rights against unfair dismissal, redundancy payments and statutory sick pay.
However, if you decide to lay off staff, your business is required to provide each employee with adequate notice before terminating their contract, specifically, you must:
– Give at least one week’s notice before terminating a contract of an employee who has been employed continuously for less than two years.
– Give at least one week’s notice for each year of continuous employment before terminating a contract of an employee that has worked at your business for more than two years, but less than 12 years.
– Give at least 12 weeks’ notice before terminating the contract of an employee who has been employed continuously by your business for 12 years or more.
For more information on the Employment Rights Act, you can visit:

  • The Equality Act 2010:

The Equality Act protects employees from many forms of discrimination (eg race, gender, age, religion, sexual orientation and disability) in the workplace. Therefore, when deciding whether to lay off or furlough staff, this Act still applies.
With this in mind, it’s vital to provide valid reasoning to your staff when discussing your laying-off or furloughing decision. Failure to comply with this law during the procedure could result in costly discrimination claims.
For more information on the Equality Act, you can visit:
In Conclusion
Should you decide that your business needs to lay off or furlough employees, it will not be a simple or straightforward undertaking either way. Businesses must consider the wellbeing and welfare of their staff, as well as the financial realities of running a business.
Regardless of what you decide—transparency is key for a smooth move.
For any additional employment guidance, you can contact our partners – EaziAdvice:
However, remember Plan Insurance Brokers is still open for business and and is happy to discuss any insurance related issues.