What’s the Difference Between Furlough, Layoff, and Termination?

Lingering inflation and uncertainty over tariff policies have many Americans wondering if the U.S. economy is headed toward a recession. That could lead to an uptick in job losses and interruptions in the form of furloughs, layoffs, and terminations. 

Job loss is a common cause of financial problems that could lead to needing debt relief.

In a nutshell, the difference between furlough, layoff, and termination is as follows:

• Furlough is a temporary unpaid leave from work.

• Layoff is a permanent loss of a job not due to an employee’s actions.

• Termination is a permanent end to a job, often (though not always) for a specific reason.

It’s important to know what rights you have if any of these things happen to you, so let’s take a deeper look at each one.

What You Need to Know About a Furlough

A furlough, or mandatory suspension from work without pay, can be as brief or as long as your employer desires. If you’re furloughed, it’s generally because your employer doesn't want to lay you off, but also can’t keep paying your wages in the near term. Here are some things to know about being furloughed. 

You shouldn’t work without pay

As a furloughed employee, you shouldn't do any work for your employer. According to the Department of Labor, if you answer work-related phone calls or emails or engage in any other work-related tasks, your employer must pay you for the time you worked. This holds true whether you’re a salaried or hourly employee.

You get to keep your benefits

If your employer gives you benefits in addition to your salary, you typically keep them while you’re furloughed. So if you depend on your employer for health insurance, retirement accounts, life insurance, or other benefits, you probably won’t lose them during this time. However, you might still be required to contribute toward things like health insurance premiums, despite not getting a paycheck.

You can seek new employment

Just because you’ve been furloughed and are technically still someone’s employee doesn’t mean you can’t look for a new job. Many furloughed employees take temporary jobs during their furlough period so they can bring in some income while they’re not being paid. If your goal is to return to your job, you may want to turn to the gig economy for flexible work in the meantime. Earning at least some money could help you avoid debt.

You can collect unemployment benefits

You can usually collect unemployment benefits as a furloughed employee. The amount you’re eligible to receive depends on your wages, as well as your state. Each state has a maximum weekly unemployment benefit. If you return to work, your unemployment benefits end.

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What You Need to Know About a Layoff

In a layoff, you’re let go from your job due to no fault of your own. It could be that your company’s needs have changed and they’re looking to downsize staff. Or that money is tight and your employer needs to cut its headcount. It’s possible to be rehired after a layoff, but it’s not something to bank on. Here are some things to know about layoffs.

You should seek unemployment benefits

If you’ve been laid off, it’s important to file an unemployment claim with the state you worked in as soon as possible. If you receive severance pay from your employer, you might not be eligible for unemployment benefits right away. It’s still a good idea to file your claim so it can get processed. In some states, no benefits are paid for the first couple of weeks after you file, so you’d want to get that waiting period started.

You may need to apply for new health insurance

Typically, when you’re laid off, you lose your workplace benefits right away, including health insurance. You could sign up for COBRA (a program that continues your health insurance while furloughed or laid off). Typically, you’d have to pay the portion of your insurance that used to be covered by your employer. That could be quite expensive.

You may be better off finding a more affordable alternative through the Affordable Care Act marketplace (healthcare.gov). Medicaid may also be an option if you qualify based on income. Or you may be able to secure health coverage from a spouse’s job.

Understand your severance package

Your employer may offer you a severance package when they lay you off. It may be a one-time payment, or several payments spaced out over time. Your severance may be based on the length of your employment. To get paid, you may also have to sign a severance agreement in which you give up certain rights. It could pay to review that agreement with an employment lawyer before signing it. 

What You Need to Know About Termination

When you’re terminated from a job, it typically means you’re being let go for cause. However, that’s not always the case. Some companies offer voluntary termination, meaning an employee resigns, usually in exchange for some type of payment. Here are some things to know about termination.

Don’t expect unemployment benefits

Unemployment benefits are generally available to workers who lose their jobs through no fault of their own. If you’re terminated for cause, whether because of issues with your performance or for violating your employer’s rules, you generally can't claim unemployment benefits. If you file a claim, your employer will likely contest it.

You may or may not be entitled to severance

If you’ve been terminated from your job, your employer may still offer you severance benefits. If not, you may be entitled to payment for accrued but unused sick or vacation time. Talk to your human resources representative to learn more. 

Prepare to lose your benefits

When you’re terminated, you typically lose your workplace benefits. As is the case with being laid off, you may need to find a new source of health insurance. 

Start your job hunt as soon as possible

If you’ve been terminated, it means you’ve lost your job and probably can’t get unemployment benefits. That could make it difficult to pay your bills and lead to credit card debt. You might also end up blowing through your emergency savings quickly without a job.

Look for work as soon as possible. Here are a few job search tips that could help you out.

• Network online. Use the power of the internet to help find your next position. Join professional groups on Facebook and LinkedIn, and make it known that you’re in the market for a job in your industry.

• Bolster your skills. The more skills you learn and develop, the more options you might have. You can also look at enrolling in free courses and certification programs.

• Prepare for interviews. If you were at your most recent job for a while, your interview skills may, understandably, be rusty. Practice your skills in front of a mirror to boost your confidence. Or find a friend or family member to do mock interviews with you so you get more comfortable.

Protecting Your Finances After Furlough, Layoff, or Termination

Losing your job, no matter how it happens, could impact your personal finances. If you find yourself out of a job:

• Assess your emergency fund. See how many weeks or months of bills you can pay out of your savings.

• Review your budget. There may be expenses you can cut back on while your job situation is in flux. Comb through your budget carefully, and try to pinpoint a few bills to reduce.

• Get relief from your debt. It can be hard to pay a mortgage or make minimum payments on your credit cards when you’re out of work. Contact your lenders and credit card issuers to see what options you have. You may be able to pause some of your payments. You can also look at options for debt relief if you feel your debts are no longer manageable.

Losing a job can be a harsh blow, whether it’s temporary or permanent, and whether you did something wrong or not. Don’t hesitate to turn to family and friends for support as you figure out your next steps and regroup.