What Is Employee Furlough?

Definition & Examples of Employee Furlough

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Employee furlough is mandatory time off work with no pay. Employees typically retain their health insurance and other benefits during a furlough.

Read on to learn more about how employee furlough works, furlough requirements, and how an employee furlough is different from a layoff.

What Is an Employee Furlough?

An employee furlough is a mandatory leave of absence without pay. The goal of an employee furlough is for the company or organization to save money by lowering expenses.

Employee furloughs can be a positive alternative to layoffs for employees since there's a good chance they'll return to work. Employees on furlough can typically collect unemployment, and benefits like health insurance usually continue during the furlough.

A furlough doesn't necessarily mean you're completely out of work. It may mean a reduction in hours, but that depends on whether you're exempt or non-exempt. Exempt employees are typically salaried and have a managerial or executive role. Non-exempt employees are paid hourly.

Some states have implemented work-sharing programs. Work sharing is a type of unemployment insurance (UI) program that allows an employer to reduce the number of hours an employee works during a week while unemployment compensation makes up some of the difference in income. This arrangement allows employees not to suffer as much financially in a furlough.

When federal or state governments implement employee furloughs, it's often related to budget issues. Employees are usually paid for the time on furlough when the budget crisis is over.

How Employee Furlough Works

Employee furloughs can occur in public- and private-sector organizations when revenue or projected revenue fails to match expenses. Revenue is generated through product sales, grants, and governmental support and subsidies.

Companies notify employees that they're going to be furloughed. In some situations, the company may be able to tell employees when they'll return to work. In other cases, the furlough may be indefinite.

Some companies have regular furloughs. For instance, a lawn care company might shut down after fall cleanups are done and not reopen until spring. A manufacturing company may produce products that are needed only seasonally, such as snow blowers,

Seasonal work isn't the only time when furloughs can occur. When a factory has difficulty getting suppliers to provide enough materials, it may make sense for the company to go on furlough rather than paying employees who can't make the product.

In 2020, businesses faced an unprecedented situation. Employers across the world placed employees on furlough due to the spread of COVID-19, a severe coronavirus, which required businesses to shut down.

Requirements for Employee Furlough

Both employees and employers are required to follow the no-work rule during a furlough. Exempt employees are entitled to a full day's pay if they do any work at all, even answering an email. A non-exempt employee who performs any work during the furlough must also be paid, but only for the time actually worked.

This may seem drastic, but employers can't expect employees to do unpaid work, and the rules are strict to protect both employees and employers.

Employee Furlough vs. Layoff

In mandatory employee furloughs, employees take unpaid or partially paid time off of work for periods of time. The employees generally have either scheduled time off or call-back rights and expectations.

In a layoff, employees generally have no right to recall and no expectation of the job returning. In a furlough, employees are usually given a time frame—although this sometimes changes.

To schedule employees with a contract for a furlough, including union-represented employees, employers must renegotiate the contract. Negotiations about employee furloughs generally include a call-back date.

Employee Furlough Layoff
Employees retain benefits Benefits end on last day of work or at the end of the month
Expected to return to work May be called back to work, but there's no guarantee
May be able to work a reduced schedule May receive severance

Key Takeaways

  • An employee furlough is mandatory time off work without pay. 
  • Employees typically retain benefits. 
  • Employee furloughs can be due to seasonal work, budget shortfalls, or to protect public health.
  • Employees can't work during the time they are furloughed. 

Article Sources

  1. Havard Business Review. "You've Been Furloughed. Now What?" Accessed June 14, 2020.

  2. SHRM. "Unemployment Insurance and Furlough Q&As." Accessed June 14, 2020.

  3. Wage and Hour Division. "Fact Sheet #17A," Page 1. Accessed June 14, 2020.

  4. Employment Development Department. "Work Sharing Program." Accessed June 14, 2020.

  5. Office of Personnel Management. "Guidance for Shutdown Furloughs," Page 2. Accessed June 14, 2020.

  6. Wage and Hour Division. "Fact Sheet #70." Accessed June 14, 2020.