What is a Furlough?

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Definition:

A furlough is a type of temporary work suspension during which an employee stays employed but doesn’t work or receive payment until the employer can afford to restart work.

🤔 Understanding a furlough

A furlough is an alternative to a layoff that employers use when they don’t want to let go of an employee but also can’t afford to pay them. During a furlough, employees are effectively forced to take a leave of absence or to reduce their hours. Generally, they cannot work for the employer and will not receive pay, but they are not considered unemployed. Some furloughed employees may still receive benefits, such as health insurance, and some may also be able to receive unemployment benefits, but this varies from state to state. In some states, the activities required to receive unemployment, like applying to new jobs, would not make sense for a furloughed employee who is only without work temporarily.

Example

Let’s imagine a marketing professional named Jenny, who works full-time at a small advertising agency. Jenny is a valuable employee, but during a period of financial downturn, her employer can’t afford to keep paying her. However, her employer also doesn’t want to let go of her entirely and is hoping that things will start to pick up again soon. Her employer decides to furlough her, which means that Jenny has to stop working and won’t be paid during that time. However, she’ll still be considered to be employed, she’ll receive the same benefits as before, and when her employer can afford to pay her again, she’ll resume work.

Takeaway

A furlough is like a bunch of snow days...

When you have a few snow days, it’s a welcome break from school. But if you have too many snow days, you’ll have to give up some of your summer break, and that’s a real bummer. Similarly, a furlough is like a forced vacation. Some time off work without pay might be ok, but once you’re losing out on your income for an extended period of time, the fun wears off fast. However, just like a snow day, when you’re furloughed, you assume that you’ll be returning to work eventually.

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What is a furlough?

A furlough is a temporary suspension of work duties and payment for an employee. Furloughs are common in both the private and public sectors, but the causes for each are different. In some cases, a furlough may constitute a reduction in work hours and pay instead of a complete cessation. A furlough is not a disciplinary action.

Furloughs typically occur when an employer values an employee but doesn’t have enough money or funding to continue paying their salary or wages. It is generally considered an alternative to a layoff when a company is going through difficulties. Alternatively, a furlough may be a consequence of insufficient funding to a government agency, sometimes occurring during a temporary government shutdown.

When an employee is furloughed, they are technically still employed. However, they are forced to either reduce their work hours (and consequently their pay) or temporarily stop work entirely, depending on the circumstances. Unlike being unemployed, furloughed employees assume they still have a job to return to when the employer’s finances improve, and they will usually retain the benefits that come with their employment, such as their health benefits.

In some states, furloughed employees can receive unemployment benefits, but the actions required to receive the benefits may conflict with their employment status. For example, to receive unemployment benefits, some workers may need to prove they are applying to jobs, which won’t always make sense for a furloughed worker who knows they’ll be returning to work eventually.

Some furloughs are highly publicized, such as those that occur in the public sector due to federal government shutdowns, but these significant events are not the only causes of furloughs.

What are the types of furloughs?

There are two major types of furloughs:

Private furloughs occur when a business experiences a period of financial downturn and can’t afford to pay its current employees. This may occur because of seasonal changes (i.e. furloughing employees during slow months) or because of sudden events that change a company’s finances, such as the coronavirus pandemic (COVID-19). In a private context, furloughs are typically instituted as an alternative to laying off employees when a company needs to downsize temporarily.

Public furloughs can occur either because a federal agency needs to downsize or because Congress has not approved new spending (a government shutdown). There are two types of public furloughs:

  • Administrative furloughs are instituted when a federal government agency reduces its spending to stay afloat. It is a way to downsize without laying off federal employees. Furloughs can also be the result of sequestration (automatic government budget cuts).
  • Shutdown furloughs (emergency furloughs) occur when Congress does not approve spending for the coming fiscal year. These usually happen very suddenly and are often highly publicized events. The government will often offer back pay to federal workers who were furloughed due to partial government shutdowns once the shutdown ends.

How does a furlough work?

In a furlough, an employee is forced to stop working and receiving payment, despite maintaining their employment status. In essence, the employee is forced to take a leave of absence. The period during which the work is suspended can either be open-ended or there can be a set date when the employee will recommence their work.

Furloughs work differently depending on whether an employee is paid an hourly wage or a salary. If an employee is paid a salary, they are legally classified as exempt, but if they are paid a wage, they are classified as non-exempt.

When furloughed, exempt employees must completely stop working. If they work even just an hour for one week, they must be paid their entire salary for that week, according to the Fair Labor Standards Act. Non-exempt employees can simply reduce their hours without completely stopping work.

During a furlough, employees will typically retain their employment status and their benefits.

How do employees get paid during a furlough?

Exempt employees are not paid while they are furloughed, as long as they are not working. If an employer attempts to only reduce an exempt employee’s weekly hours, they will still be required to pay that employee’s full weekly salary. Employers must pay exempt employees their full weekly salary no matter how much they work, as long as they work at all.

Non-exempt employees, however, can be furloughed and still receive payment. In this case, the employee works reduced hours and is compensated accordingly.

Can you collect unemployment if you get furloughed?

Furloughed employees are eligible for unemployment insurance in most states, as long as their working hours have been reduced to 20% or less. However, getting those unemployment benefits can sometimes be tricky: Some states require people who are collecting unemployment insurance to prove that they are applying and looking for work, which may not make sense if the furloughed employee is expecting to recommence work at their existing job soon.

What is the difference between furloughs and layoffs?

A layoff is a permanent termination of employment from a company. Employees who are laid off are no longer considered employed, will not continue to receive the benefits of their employment (health insurance, etc.), and will not resume working for that company unless they are rehired at a later date.

A furlough is a temporary cessation of work. The furloughed employee retains their employment status, continues to receive their employee benefits, and will eventually start work again.

What are employee rights during furloughs?

During furloughs, employees have the right to search for new employment. Some employees may also consider taking on temporary work during the duration of their furlough, but employers still have the right to enforce restrictions on working outside of their employment. Furloughed employees also have the right to collect unemployment insurance while they are furloughed.

What are the legal implications of furloughs?

When an employee is furloughed, they retain their status as an employed person and all the legal implications that come with it. That means they still have workers' and employees' rights, and they can still receive employee benefits. However, if their hours are reduced significantly, they can still collect unemployment (this will vary from state to state).

What are the advantages and disadvantages of furloughs?

For employees, being furloughed is often preferable to being laid off. When you are furloughed, you are still considered employed, so you can continue receiving the benefits of your employment, such as your health insurance. Furloughs are temporary, so you will also know you have a job to return to when the furlough is over (assuming the company doesn’t completely go under or lay you off). You can also typically collect unemployment insurance.

However, your employer can still enforce restrictions on taking on work from other companies, so you may be unable to earn any income during the time you’re furloughed.

For employers, furloughs offer the ability to retain a valuable employee while still downsizing for a time. However, there is always the risk that the furloughed employee will find new work during their time on furlough and leave the company voluntarily.

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