Furloughs vs. layoffs

Millions of Americans recently filed for unemployment in the past few weeks, mainly due to stay-at-home orders that have forced businesses to temporarily shut down during the COVID-19 health emergency. We join every American in hopes that this experience is short-lived, that businesses will reopen soon and that people affected are rehired quickly.

For U.S. workers who lived through the dot-com bubble or the recession of 2008, this may not be your first layoff. For a lot of people, however, this is the first time they're hearing the term “furloughed” used in such a mainstream way.

It's caused a lot of confusion, so let's take a look at the differences between a furlough and a layoff, and consider how each will impact that mortgage payment you're responsible for making every month.

What is a layoff?

A layoff involves terminating an employee during a period when their position is no longer necessary. It's different from being “fired,” as it's not reflective of the employee's quality of work, nor is it the fault of the employee that the work has dried up. If there are no plans to rehire the laid-off employee when things pick up again, it's considered a permanent layoff. If the business expects to rehire employees when things get back to normal, it's regarded as a temporary layoff. 

What is a furlough?

In simple terms, a furlough happens when an employer seeks to retain staff that they can't afford to keep on, but they don't want to lay them off permanently. The term may be new to you, but it's commonly used in industries that generally experience an ebb and flow of business. Consider seasonal work like summer tourism or holiday retail, or government offices where employees are suspended from work without pay during a shutdown. Once the work resumes, their jobs return.

The point of a furlough is to spread hardship among a higher number of employees rather than laying off individual employees entirely. If someone is furloughed part-time, they're still considered an employee but with a reduced schedule. If they're furloughed outright, it's considered forced unpaid leave. Surprisingly, while furloughed employees are not fully “terminated,” they're still eligible for unemployment. Then, once the employer's business reopens, furloughed employees can return to work.

Layoffs vs. furloughs

Let's look at some ways furloughs differ from layoffs.

• Employees who are laid off should not expect to return to their job. But furloughed employees are often given a specific business condition or a particular date when they can expect to return to work, if the position still exists. For many furloughed during the COVID-19 emergency, a return date couldn't be immediately communicated, but employees may have been told that they could return “when the stay-at-home order is lifted.” 
• Employers are no longer responsible for supplementing the health benefits of laid-off employees who must find health insurance elsewhere or go without. Furloughed employees, on the other hand, may be able to keep their health and life insurance benefits. 
• Both furloughed and laid-off employees may be able to “cash-in” earned, but unused, vacation or personal days to soften the blow. 

What to do if you lose your income

First, get clarity from your employer. Whether you've been laid-off or furloughed, do the following as soon as possible:

• Ask if your health benefits will continue. If not, you'll want to choose new health coverage ASAP.
• Ask what happens to your accumulated personal time off, and if you can get the financial equivalent of that earned time added to your final paycheck. If you've been furloughed, your employer may ask you to keep it for when you return. 
• Determine if you'll be required to do any work at all during the furlough period. If you were a salaried employee, your furlough may ask you to work part-time. If hourly, you may be asked to do shorter shifts. Whatever you do, don't work any more than asked and track every hour. It could affect your unemployment status.
• For layoffs as well as furloughs, file for unemployment immediately. During the COVID-19 health emergency, the US government changed the unemployment guidelines to allow furloughed employees to qualify. While those benefits may not stick in the future, it's a good sign for employees impacted by large-scale extenuating circumstances. As always, you'll need to apply for unemployment in the state in which you were working. 

Dealing with mortgage payments during a furlough or layoff

When you're laid off or furloughed, you might be worried about how you'll make your monthly mortgage payments. It's a common concern, and a time when it's easy to make ill-informed financial decisions. For example, during the financial crisis of 2008, many homeowners just stopped making payments altogether, leading to millions of foreclosures nationwide and a lot of ruined credit histories. 

First of all, mortgage lenders don't want their borrowers to default. They want to work with you and help you through this situation. If it's a national crisis, like a health emergency, or a regional one, like a hurricane, don't be surprised if they reach out to you to see how you're doing.

Don't wait for your mortgage lender or loan servicer to contact you. Take the first step and pick up the phone. By stating your concerns and asking for assistance, you'll go on record as being motivated and proactive.

You'll find that homeowners who have been furloughed or laid off could qualify for mortgage forbearance. That's when the lender and the homeowner agree to a lower monthly payment for a fixed time, or to pause monthly payments. 

Forbearance is not a path you want to go down just because you don't like the terms of your loan or don't feel like paying. Mortgage forbearance is reserved for actual hardships. 

A forbearance period is also not debt forgiveness. You'll still owe that money plus accrued interest and taxes. But if you are in some form of financial distress — and a job loss or job furlough would definitely apply — you might be able to negotiate a little relief from having to make those monthly payments. Mortgage forbearance can last from several months to a year, depending on the circumstances that led to your loss of income. So it's certainly worth discussing.

And if the difficulty you're experiencing isn't resolved by the time your mortgage forbearance period ends — or if it's gotten worse — some lenders may extend your agreement to give you even a bit more time.

Movement Mortgage has several alternative programs available to address temporary financial setbacks. Talk to a local loan officer to better understand your options.