DEFINITION of 'Furlough'
A furlough is a temporary layoff, an involuntary leave or another modification of normal working hours without pay for a specified duration. Businesses use furloughs for a variety of reasons, such as plant shutdowns, or when a broad reorganization makes it unclear which employees will be retained.
Furloughs are used in the military for soldiers whose new assignments have not yet been determined.
BREAKING DOWN 'Furlough'
In contemporary business practice, furloughs are less permanent solutions than layoffs. They are useful in situations in which the economic conditions prompting the furloughs are deemed to be of short duration. They are also common in situations where business disruptions are deemed to be temporary.
The Difference Between Furloughs and Layoffs
Furloughs are temporary cessations of work when employees retain their jobs but do not get paid. During furloughs, employees keep their benefits and anticipate that they will return to work within a certain period of time. However, in layoffs, employees are permanently discharged and have no expectation of getting their employment back. For employers, one of the main advantages of furloughs over layoffs is that they can call back trained workers when conditions improve rather than hiring and training new employees.
Examples of Furloughs
Furloughs may be short- or long-term, depending on the circumstances. During economic downturns, some companies reduce costs by imposing a number of mandatory unpaid days off per week, month or year. For instance, in 2015, Oracle initiated a policy requiring its employees to take four days off between Christmas and New Year's Day. This qualifies as a furlough, because the employees received a deficit of four days on their paid vacation allowance.
Other furloughs are seasonal. For example, companies providing landscaping and lawn care may furlough their employees when they shut down for the winter. In other instances, factories may furlough their employees during temporary shortages of materials and call them back when the factories have been resupplied.
Shutdown furloughs may occur when political bodies do not appropriate sufficient funds during a fiscal year to pay government workers. During these types of furloughs, government agencies must cease activities until legislatures vote to release the funds. For instance, in June 2015, the state of Washington sent out furlough notices to over 26,000 employees because lawmakers were at an impasse about the state budget.
Legal Implications of Furloughs
Furloughs apply differently to nonexempt (hourly) employees and exempt (salaried) employees. Employers can legally impose furloughs on hourly employees but must cut their workloads to match the cut in hours, as nonexempt employees must be paid for every hour that they work. Exempt employees who are paid predetermined salaries weekly or monthly can do no work during furloughs. If they do any work during furloughs, they must be paid their full salaries.