What Happens When You Go on Furlough?

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So, your company has announced that there will be furloughs. Don't panic. There are advantages and disadvantages to furloughs. Here's information on what a furlough is and what it means for you—and your financial future.

What is a Furlough?

A furlough is a mandatory temporary unpaid (or reduced pay) leave of absence from a job. In tough economic times, many companies furlough employees 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.

Furloughed workers may be eligible for unemployment compensation, and expanded benefits are available due to the coronavirus.

Check with your state unemployment office for information on eligibility and how to file a claim for unemployment benefits.

Furloughs are common among manufacturing companies, but government agencies have also begun to consider and use furloughs.

The Difference Between a Layoff and a Furlough

Furlough

A furlough is considered a leave of absence from a job. When an employee is furloughed, they have the expectation of returning to their job after the furlough ends.

What happens with employee benefits will vary based on your company's benefit plans. In many cases, your health and life insurance benefits will continue while you are furloughed. Check with your human resources department or manager for information on what coverage you will maintain.

Layoff

With a layoff, employment is terminated. The laid-off worker may no longer be eligible for company-provided health insurance or other employee benefits. However, there are options for continuing health insurance coverage.

Review more information on the difference between a furlough and a layoff, and how to handle it if you've lost your job.

Are Furloughs 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 a Furlough Affect Me? 

One thing to keep in mind: If you are facing the possibility of a furlough, it means you will lose money. Thus, you need to adjust your budget accordingly to plan for the loss of income.

Furloughs can take different forms:

  • Your employer may simply have you take an unpaid day off once a week, or they may have you take one or two or more 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, you can begin saving now to cover it and consider picking up temporary work during your time off.

However, if you are covered by an employment agreement that precludes you from taking another job you'll won't be able to work at a temporary job.

Check with your state unemployment office for information on collecting unemployment while you are furloughed.

CareerOneStop has a directory of state unemployment websites where you can learn about available benefits in your location.

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 one 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 make you run short on grocery money. Also, be sure to have your emergency fund fully in place so that 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 are applying extra money toward your debt payments, you may have to put this goal on hold in order to save up to help you through anyfurlough or layoffs.

Depending on the amount of debt you have, you may want to put off making payments until you know whether 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 at 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 time to be looking for a new job is while you are still employed. However, if you are furloughed you can continue to job search and look for a new position.

Can I Use My Emergency Fund to Cover My Furlough?

If you have a sufficient emergency fund, you may be able to look at the furlough as an opportunity to relax at home for an extra week or for one day a week.

However, if you are facing a furlough, you should still be responsible about how you spend and save. If things do not improve over the next year, you may still face the possibility of layoffs.

Updated by Rachel Morgan Cautero.

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