Furloughs Begin in Earnest

  • Retailers are furloughing hundreds of thousands due to COVID-19
  • What does furlough mean & how is it different from layoffs?
  • St. Louis Fed 47 million could lose jobs in Q2

Several large retail companies, including Macy's (M), Gap (GPS), Kohl's (KSS) and Neiman Marcus, announced furloughs yesterday as the COVID-19 outbreak forces non-essential businesses to close and keeps consumers at home. The largest U.S. newspaper publisher, Gannett (GCI), has also announced it will furlough employees and cut pay in offices across the country. This is also taking place in other industries like hospitality and airlines.

What is a 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.

The numbers are huge. Macy's employs 125,000 people and is furloughing most of them. While its digital business continues to run, it has lost the majority of its sales since it closed all stores on March 18. "We expect to bring colleagues back on a staggered basis as business resumes," it said in a statement. Gap and Kohl's have furloughed around 80,000 workers each.  

So what does furlough mean and what do you need to know about it? Most Americans are familiar with the term in the context of government shutdowns. In a furlough, employees are given time off without pay or with lower pay. It's basically an unpaid leave of absence and lasts for a temporary period, which is what makes it different from being laid off. It allows companies to drastically cut costs and retain employees instead of going through the expensive process of rehiring once conditions improve.

Thirty states in the country have so far issued stay-at-home orders, and jobless claims soared to a record 3.28 million in the week ended March 21. The following week is expected to exceed that when the data is released Thursday. The St. Louis Fed has said the unemployment rate could reach 32.1% with 47 million losing their jobs during the second quarter. Close to half of the 250 companies surveyed by outplacement firm Challenger, Gray & Christmas during March 20-26 said they are likely to conduct temporary or permanent layoffs in the next three months. Fourteen percent had already furloughed employees, and 37% said they are likely to do so in the next three months. 

Here are some key points to know about furloughing:

  • Exempt employees cannot do any of their regular job duties if they have been furloughed. If they do, they are considered to be working. This includes even replying to an email. Non-exempt employees can have their hours reduced and be paid for those.
  • An on-off furlough plan leaves employees without pay for a recurring period instead of a continuous one. For example, Gannett announced 1 week unpaid per month during April, May and June.
  • Furloughed workers qualify for unemployment benefits as mentioned in the $2 trillion stimulus package (extra $600 a week, 13 weeks extension)
  • Health and other benefits may or may not remain in place
  • Companies are not required to specify how long the furlough is for, although some may
  • Employees can seek work elsewhere unless their contracts prevents it

The U.S. Department of Labor has a page dedicated to coronavirus-related updates and guidance. 

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