A Complete Guide to Temporary Layoffs

When a business faces lean times and needs to cut costs, it may consider the difficult decision to lay off employees. Yet not all layoffs involve permanent termination. Sometimes business leaders will initiate a temporary layoff to reduce their workforce, particularly when they expect to call employees back to work in a matter of weeks or months.

To encourage temporarily laid-off workers to remain available for work, businesses may continue to offer certain benefits during the layoff period. Plus, workers are often eligible to collect unemployment during a temporary layoff.

What Is a Temporary Layoff?

A temporary layoff occurs when a business terminates the employment of workers during a brief period, typically six months or less. Layoffs of any kind, including temporary ones, are often considered a last resort for companies. After all, businesses don’t want to lose talent – and they also don’t want to risk the reputation damage that can come with a layoff.

Yet if demand declines for a company’s products or services, perhaps due to an economic downturn or other factors, and it can’t cover payroll or doesn’t have enough work for its employees, the company may decide to reduce its current workforce by initiating a temporary layoff.

Layoffs – whether temporary or permanent – are different from firing workers for misconduct or poor performance, since employees are being let go through no fault of their own. The employer intends to call workers to return when conditions improve.

When Temporary Layoffs Are Necessary

Some seasonal businesses, such as amusement parks and ski resorts, may temporarily lay off their employees when business slows down with the expectation they will rehire these workers a few months later.

In other cases, poor economic conditions may spur companies to lay off workers temporarily. For instance, the COVID-19 pandemic led to widespread temporary layoffs. In January 2020, prior to the onset of the pandemic in the U.S., 640,000 Americans were on a temporary layoff, according to the Bureau of Labor Statistics. But by April 2020, after lockdowns caused a number of restaurants, hotels, and other businesses to close, the number of temporary layoffs soared to more than 18 million before slowly subsiding, the bureau found.

Can Workers Collect Unemployment Insurance During a Temporary Layoff?

Unemployment insurance is intended to tide workers over during temporary periods of unemployment until they find new work, so most workers on a temporary layoff are eligible to collect benefits.

To collect benefits, workers must be able, available, and actively seeking work. When an employer calls a temporarily laid-off employee back to work, the worker’s unemployment benefits will typically end.

Employers don’t usually offer severance pay during a temporary layoff. But to encourage workers to remain available for a recall, some employers may offer to continue certain benefits, including health insurance, during the temporary layoff period. Employers should check with their insurance policies to determine whether and for how long employees not actively working can remain covered under the health plan.

Laying off employees doesn’t just negatively impact the people you are letting go. It can also be harmful to your remaining staff, customers, brand, and reputation.

Temporary vs. Permanent Layoffs

A permanent layoff is considered an indefinite termination of an employee with no intent to rehire the worker later. Aside from losing talent, companies can consider other potential downsides to a permanent layoff:

Reputation Costs

Companies may take more of a reputational hit from permanent versus temporary layoffs – and not just with the public. Morale and productivity within the company may take a dive as well. A permanent layoff may also send employees the message the company is in financial trouble, which can push investors, consumers, and other employees away and compound a company’s problems.

Severance and Training Costs

Permanent layoffs can also be expensive in the short-term for a company, due to severance costs. If the business turns around, the company might need to spend money recruiting and training new employees. If hiring staff in the near future is a possibility, companies may want to consider a temporary layoff instead.

Should Your Business Initiate a Temporary Layoff?

Before laying off employees temporarily, business leaders may want to take these steps:

1. Consider your company’s needs.

Review your budget and projected expenses and revenue through the period of economic downturn. Think about alternative ways to reduce staff expenses, such as limiting overtime or mandating a two-week furlough in which workers take unpaid time off but remain in their positions.

2. Compare the details.

How much notice must be provided to employees before a temporary layoff? What expenses are involved, including the cost of health insurance and any other benefits that may continue during the layoff? Analyzing these details can help determine a company’s short-term expenses versus long-term savings.

3. Reflect on the impact.

When a business temporarily lays off workers, these employees may find jobs elsewhere and decline an offer to return. Plus, laying off employees doesn’t just negatively impact the people you are letting go. It can also be harmful to your remaining staff, customers, brand, and reputation. In addition to considering the company’s current financial situation, companies may want to weigh all potential impacts of a temporary layoff.

How to Notify Employees of a Temporary Layoff

When notifying employees about a temporary layoff, clear communication is key. Employee layoffs can be scary and emotional for both the impacted worker and management.

Be prepared to provide as much information as possible, but do not promise anything the company can’t deliver. Explain that the layoff is not the employee’s fault, and be honest about the reasons the company needs to reduce its staff.

Some people might immediately have a lot of questions, while others may not want to speak in that moment. It’s important to remain calm and supportive and answer questions. Companies may want to prepare FAQ handouts that include these eight common questions temporarily laid-off employees are likely to ask, along with standard answers to those questions, which can be customized to suit the unique situation.

1. How were employees selected for temporary layoff?

Our procedures for layoff selection include an objective review of each position within the affected departments. The criteria we reviewed include staff members’ job classifications, skill set, performance, and seniority. 

2. What happens to my health insurance during the layoff period?

During this temporary layoff, health insurance benefits will continue for up to six months [or another specified time period], and employees will be responsible for catching up on outstanding contributions after returning to work. If the layoff extends beyond six months [or another specified time period], COBRA continuation coverage will be offered. If health insurance is not offered during the temporary layoff, this answer could be: company-paid health insurance will cease and COBRA continuation coverage will be offered.

3. Can I use any paid time off during the layoff period?

No. We are unable to pay employees or allow the use of paid time off during this period. [Business leaders can check their state’s vacation and sick leave laws to ensure that the company is complying with local regulations regarding paid time off.]

4. Can I collect unemployment?

Yes, in most cases, employees can collect unemployment benefits during a temporary layoff. [The company can also provide employees with the state’s eligibility guidelines and include information about the application process.]

5. When can I return to work?

We expect this layoff to extend until [a certain date]. Employees will be recalled to work as business needs warrant, based on their job function and seniority.

6. Do I have to reapply for my position?

No. Employees will be recalled to work in their original positions.

7. Will I be eligible for severance pay?

No. This layoff is expected to be temporary, and we intend to recall employees back to work. However, should a permanent reduction in force become necessary, severance pay offerings will be communicated at that time.

8. Can I accept outside temporary employment during the layoff?

Yes. Employees may seek outside employment during the layoff. If you find alternate employment during this period and do not intend to return once the temporary layoff period ends, please notify human resources immediately of your voluntary resignation.

Once you tell the affected employees about the temporary layoff, notify your remaining staff and explain that the company expects to rehire the workers after a specified period of time. Your employees may be looking for some reassurance that the company doesn’t intend to make additional staff cuts. You may also want to outline any changes in job responsibilities as a result of the temporary layoffs.

The Takeaway

During times of economic hardship, businesses might feel the need to decrease expenses by temporarily reducing headcount. After carefully considering the impact of a temporary layoff, business leaders can develop a clear communication plan to notify employees and answer their questions. In most cases, companies can reassure laid-off workers that they are eligible to collect unemployment benefits until the company is able to welcome employees back to work.