As an employer, you might find yourself struggling financially at some point. You may have to resort to pay cuts or even layoffs. Furlough is an alternative to letting go of your hardworking employees. Learn more about the pros and cons of furlough, furlough meaning, and furlough laws below.
Definition of Furlough
Furlough is mandatory time off work for employees, typically with no pay. A furlough is temporary, and employees still have their jobs.
Some employers may choose to offer furlough pay or partially paid time off (PTO). Partial PTO could mean an employee is paid for some days (e.g., two days), part of the day, or a portion of their regular wages.
Depending on company policy, employees may need to dip into their PTO or vacation balances to be paid during furlough.
Examples of employee furloughs may include:
- Two days off per month
- One week off per month
- A few weeks off every other month
- Indefinite time period
You may implement employee furlough to decrease your expenses and save money. Furloughs can also occur due to lack of work in the business.
If you need help covering payroll during the coronavirus pandemic, you might consider applying for a Paycheck Protection Program loan. Check out our article, “Paycheck Protection Program: How to Apply for a Forgivable Loan During COVID-19,” for more information.
You can grant one furlough day or multiple furlough days to employees. Some businesses may even have regular furloughs, like seasonal businesses or factories.
Furlough vs. layoff
Even though furloughs and layoffs may sound similar, they have significant differences.
Employees take unpaid days off or partial PTO during mandatory employee furloughs. The employees may have specific scheduled time off or be on call for work.
If you implement furlough, give employees a time frame for how long the furlough will last. During indefinite furloughs, keep employees updated as much as possible about the business and their positions.
A layoff is a period where employers suspend or terminate an employee because of the business’s lack of work, cash, or materials. Employees may receive severance pay or no pay at all. During layoffs, employees usually have no call-back rights or expectations of the job returning.
An employer can opt for temporary layoffs where they cut back or temporarily stop an employee’s work, but the employee is still employed. However, unlike furloughs, there is no guarantee that a temporary layoff won’t be permanent. Employers decide if workers are recalled or not. If an employer chooses not to recall an employee, the layoff becomes permanent.
Pros and cons of furlough
The are advantages and disadvantages of employee furloughs. Check out the pros and cons before implementing furlough below.
Review how furlough may benefit your business.
Avoid layoffs and save costs
A little obvious, but implementing furloughs allows employers to avoid laying off employees while also saving money. You can keep your all-star employees while also assuring them their future positions are safe.
If you choose to partially pay or not pay employees during a furlough, you will reduce costs. Consider implementing furlough if you find there are more employees than there is work to do. Furloughs help you avoid paying employees for sitting around when there is lack of work.
Unlike with layoffs, furloughs are typically not permanent. The same employees will likely return after furloughs unless they decide to quit. Let employees know how long the furlough will last and, if possible, provide a schedule so employees know when to return to work.
Check out the cons of furlough below.
Returning workers may feel overloaded with work. They might be stressed trying to keep up with production, which can affect performance. Employees may also fear that furloughs will not solve the problem in the long run.
If a furlough is unpaid and indefinite, employees will likely stress about money as well.
Your employees might fear the worst: layoffs. They may start searching for other jobs that don’t require furloughs or other unpaid leave.
You must keep certain laws in mind when mandating employee furlough.
Under the Fair Labor Standards Act (FLSA), there are specific rules for exempt and nonexempt employees.
Exempt employees typically receive a fixed weekly or biweekly salary rate for any work done during the week. When you furlough exempt employees, you can’t dock their pay for days absent during the week (e.g., furlough for two days per week).
If your nonexempt employees work during a furlough, you only need to pay them for hours worked. Make sure you follow minimum wage and overtime regulations when nonexempt employees work during a furlough.
Consider enforcing a “no work” rule to prevent employees from doing any work during the furlough. Make specific rules like having employees leave their devices at the office to prevent work (e.g., sending emails).
You must also follow the Equal Employment Opportunity Commission (EEOC) for employee furlough. You cannot issue furlough based on an employee’s race, age, gender, religion, nationality, disability, or genetic information.
You may need to negotiate terms if your business is part of a union. The National Labor Relations Act (NLRA) requires you to negotiate terms and conditions with the union about employee furlough. Discuss details like the spacing of days and whether the employees can choose when to take furlough.
Review individual contracts of employment before implementing an employee furlough policy. Some employees may have contractual rights to compensation or paid-leave benefits. Make sure the terms and conditions listed in employee contracts do not limit furloughs.
Generally, common employee benefits are not affected by furloughs (e.g., health insurance). Since furlough is temporary, employees are not entitled to severance pay, early retirement benefits, or outplacement.
Employees may be eligible for unemployment benefits, depending on the state. Check with your state for specific laws regarding unemployment benefits.
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