Furlough Definition

What Is a Furlough?

A furlough is a temporary layoff, an involuntary leave, or some other 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. In the military, furloughs are for service members who are allowed to leave their station post for a preset time period or whose new assignments have not yet been determined.

Key Takeaways

  • A furlough is a temporary layoff, an involuntary leave, or some other modification of normal working hours without pay for a specified duration.
  • Furloughs are temporary halts to work. Employees retain their jobs and benefits but do not get paid.
  • For employers, one of the main advantages of furloughs over layoffs is that they can call back trained workers when conditions improve, rather than having to hire and train new employees.

How a Furlough Works

In contemporary business practice, furloughs are less-permanent solutions than layoffs are. They are useful for situations in which the economic conditions prompting the furloughs are not expected to last for long. They are also common in situations in which business disruptions are deemed to be temporary—for instance, many businesses furloughed employees when the COVID-19 pandemic struck.

Furloughs vs. Layoffs

Furloughs are temporary cessations of work characterized by employees retaining their jobs but not getting paid. Employees keep their benefits during furloughs and anticipate that they will return to work within a certain period of time.

Layoffs, on the other hand, result in permanently discharged employees who have no expectation of getting their job 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.

Furloughs may be short term or long term, depending on the circumstances.

Examples of Furloughs

During economic downturns, some companies reduce costs by imposing a number of mandatory unpaid days off per week, month, or year. For instance, a company might initiate a policy requiring its employees to take four days off between Christmas and New Year’s Day, reducing the employees' accrued leave or paid time off. This qualifies as a furlough because the employees would lose four days of 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. Alternatively, factories might furlough their employees during temporary shortages of materials and call them back when the factories have been resupplied.

Government 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. In 2018, the United States experienced its longest government shutdown in history, lasting from Dec. 22, 2018, until Jan. 25, 2019, for a total of 35 days. The shutdown was estimated to have caused hundreds of thousands of federal employees to be furloughed throughout the shutdown.

Furlough Requirements

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 they work. On the other hand, exempt employees, who are paid predetermined salaries weekly or monthly, generally cannot work during furloughs. If they do any work at all, they must be paid their full salaries with certain exceptions.

For How Long Can a Company Furlough an Employee?

There is no set answer to this question because requirements vary by state. Some states may define an extended or indefinite furlough as a termination. For example, California says that extending a furlough beyond the current pay period constitutes a termination and requires employers to provide employees with a final paycheck and compensation for accrued vacation and/or paid time off.

Do Furloughed Employees Get Paid?

It depends on the type of employee. Nonexempt employees, who are paid an hourly wage, can be furloughed by reducing the hours they work in a week. However, they must still be paid for the reduced hours that they do work. Exempt employees, who are paid a predetermined salary, generally cannot be paid if they are furloughed. Should they do any work at all during the furlough, they must be paid their full weekly salary, with certain exceptions. They also retain their job benefits, such as healthcare.

What Is the Difference Between a Furlough and a Layoff?

With a furlough, there is the presumption that the employee will still have a job at the end of it. With a layoff, an employee has been terminated, and there is no possibility of resumed employment. Employers prefer furloughs to layoffs because with the former, they don’t have to deal with the expense of finding and training new workers.

Article Sources

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  1. U.S. Department of Labor. "Fact Sheet #70: Frequently Asked Questions Regarding Furloughs and Other Reductions in Pay and Hours Worked Issues."

  2. U.S. Office of Personnel Management. "Pay & Leave."

  3. JDSupra. "Layoffs vs. Furloughs: What’s the Difference in California?"

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