What Happens When You Go on Furlough?
So your company has announced there will be furloughs. Don't panic. There are advantages and disadvantages of furloughs. Here's what a furlough is, and what it means for you – and your financial future.
A furlough is unpaid forced leave. In tough economic times, many companies furlough employees on a rotating basis, instead of eliminating positions or having layoffs. This move is used to help save jobs, protect a company's bottom line, and keep it competitive once the market begins to improve.
Furloughs are common among manufacturing companies, but government agencies have also begun to consider and use furloughs.
Is Furlough Legal?
Companies do have the right to adjust your hours, just as they have the right to terminate your employment. It can be frustrating to be hit with a furlough, especially if you are living paycheck to paycheck or are having a difficult time making ends meet. However, it is usually better than the alternative, which is possibly losing your job.
How Will Furlough Affect Me?
One thing to keep in mind: If you are facing the possibility of a furlough, this means that you will lose money. Thus, you need to adjust your budget accordingly to plan for the loss of income.
Furloughs can be enacted in several ways. Your employer may simply have you take an unpaid day off once a week, or he or she may have you take 1-2 unpaid weeks off at one time. The furlough may be applied to everyone in your company at the same time, or the company may rotate it through different employees at different times.
Depending on your situation, you will need to prepare for the loss of income. If your furlough is spread out over time, you may need to look for a long-term additional income source, such as a part-time job. If it is just a week or two, then you can begin saving now to cover it, and possibly pick up temporary work during your time off.
Can I Use My Emergency Fund to Cover My Furlough?
If you have a sufficient emergency fund, then you may be able to look at the furlough as the opportunity to relax at home for an extra week or one day a week.
However, if you are facing a furlough, you should still be responsible for how you spend and save. If things do not improve over the next year, you may still face the possibility of layoffs.
How Can I Prepare for a Furlough?
It is important to be sure that you are living within your means, regardless of the possibility of a furlough. But if you are hearing whispers of a furlough at your company, it's a good idea to put money in savings. This can help cover the time that you are on furlough.
If you are not already living on a budget, now is the time to create a budget you can follow. You may want to consider cutting your expenses so that a furlough will not cause you to fall behind on your payments or have you run short on grocery money. Also be sure to have your emergency fund fully in place. So if you are put on furlough, you will be prepared financially.
How Will a Furlough Affect My Goals?
If you are trying to get out of debt and applying the extra money towards your debt payments, you may want to have to put this goal on hold in order to save up to help you through the possibility of furlough or layoffs.
Depending on the amount of debt you have, you may want to put off making payments until you know if you will be furloughed or worse, lose your job. It's also extremely important to have a three-month emergency fund in place to cover you during this difficult time.
What Does a Furlough Say About the Stability of My Job?
Furloughs can be stressful, and if your company is considering putting employees on furlough, you may want to begin looking for other jobs, in case the company decides to make further cuts in the future.
You do not necessarily need to jump ship at the first sign of trouble, but a furlough does indicate that your company may not be doing well. Remember, the best position to be in while looking for a new job is while you are still employed.
Updated by Rachel Morgan Cautero.