What Is Furlough?
Furlough is a temporary unpaid suspension from a job for as long as the employer deems necessary.
The word ’furlough’ has been heard multiple times since the start of the Covid-19 pandemic. However, as a cost-saving measure for businesses, furlough is an option for both private and public sector environments and was around long before Covid-19.
From as early as the 1980s, furlough schemes have allowed businesses to regroup, get their finances together and work out new business structures, without having to lay off large amounts of their workforce.
More recently, we have seen airlines and hospitality sectors use furlough, as they have seen their business decline rapidly since the start of the pandemic.
The word ‘furlough’ itself comes from the Dutch ‘verlof’ which translates to leave of absence.
Furlough can be a regularly scheduled event that takes place at the same time every year. This could be for seasonal businesses that only open during the summer or holiday season.
However, furlough can also be unplanned and can arise during slow periods or times when businesses do not have the resources to pay their staff for a certain amount of time.
There are both positive and negative implications when it comes to furlough; this article will explain the pros and cons from both the perspective of the employer and the employee.
Furlough can be voluntary or mandatory, and you might be used to hearing the term ‘furlough’ used for federal employees during government shutdowns. Employers in both public and private sectors can furlough staff.
Seasonal employees are often furloughed between work periods, like summer staff at theme parks and construction workers during the winter. A seasonal business might want to furlough their staff if they require employees to take time off at certain times of year but want them to return.
A business might also put a furlough policy in place if they’re struggling financially and need to save money on salaries (but keep the workforce in place). This can be for a brief period or longer if necessary.
Not every furlough process is seasonal and can be enforced due to economic circumstances, like the Covid-19 pandemic, recession or days following tragic or unfortunate events.
For example, if an office building has been damaged and access is not possible. This is something that is out of both the employers and employees’ control, and they might need to introduce furlough to help them during an untimely lull.
Another example of a time when furlough might come into place is:
A beach club providing water sport services only needs staff during the summer season. Staff are contracted to work during ‘in season’ months and the company uses furlough during the months of the year they are not required to work.
Being furloughed means you cannot do any work for your company, under any circumstances.
Any access you have to the company’s files will be temporarily revoked until your furlough ends. If you have a work cell or company car, these will also need to be returned to your employer for the furlough period.
This is to ensure that you do not break the rules and answer any emails, take any phone calls or discuss anything with clients.
If you do break these rules, the company is at liberty to pay you for the work you have done and your time, which will not sit well with your employer and will defeat the whole object of being furloughed.
An example of this could be:
You work for a technology company and you have access to your work emails on your personal mobile phone as well as on your laptop. Before your furlough starts, you will be asked to remove your work emails from any personal devices and be blocked from the company’s server.
The length of time you can be put on furlough can differ from company to company and there’s no time limit. You are still employed until the company decides to end the process.
This will allow employers to bring back staff when appropriate and not lose out on their talent, experience and training.
As mentioned above, you will not be paid during furlough but can claim certain benefits.
Some businesses, like Disney, will continue to provide their furloughed staff with healthcare or other employment benefits for at least a year.
If your company has decided to furlough you rather than lay you off, it means they have every intention of bringing you back into the workforce when they can.
However, in most cases no stipulation prevents the employee from looking for and working another job whilst furloughed.
Indeed, some companies fall victim to losing top talent during the furlough process.
The rules may vary based on the state you live in and the company you work for – we would always recommend seeking further advice if you are not sure.
Some companies will not allow additional temporary work during furlough as it is seen as ‘outside employment’ and may violate the work agreement or contract.
Furloughed workers have no entitlement to paid sick leave or expanded family and medical leave.
If working reduced hours, paid sick leave cannot be used to make up an employee’s missing income.
It is possible to claim unemployment benefit (otherwise known as unemployment insurance) whilst on furlough.
Benefits can allow an employee to remain employed by their original company and still get paid from other sources.
Again, this depends on what state you live in and the jurisdiction of that state; some people may not be eligible to claim unemployment benefits.
We would recommend getting further information on claiming unemployment benefits to see whether it is a viable option for your circumstances.
Quick Note. If you’re looking to apply for unemployment benefits you may be asked to prove you are looking for work and be asked to show up for appointments. This may differ due to regulations in your state, but failing to follow the correct process could prevent you from receiving benefits.
During the COVID-19 pandemic, unemployment insurance has been increased. Due to a bill called the CARES Act, $600 a week can be claimed in addition to the standard amount dictated by each state.
In March 2020, a $2.2 trillion relief package called the Coronavirus Aid, Relief, and Economic Security (the CARES Act) was put in place.
The bill was passed by Congress and signed into US law by President Donald Trump on March 27th 2020 as a response to the negative impact the Covid-19 pandemic was having on America’s economy.
The CARES Act allows furloughed workers to collect unemployment checks and aims to provide additional financial aid, including increased unemployment insurance benefits.
Eligibility is based on the following:
An employer requires a worker to be furloughed for a while due to the COVID-19 pandemic.
The state in which the application is made has entered into an agreement with the US Department of Labor (DOL).
The state specifically must have entered into an agreement under section 2104(a) of the CARES Act with the DOL.
In addition to the state-administered unemployment benefit which is available for 39 weeks (up to December 31st), the CARES Act has made an extra $600 per week available to eligible furloughed workers, payable up to the end of July 2020.
This was federally provided and should not have impacted on standard state benefits.
Unemployment insurance is available to all workers who are unable to work or lose their job through no fault of their own.
During the COVID-19 pandemic, furloughed workers can claim this in addition to the $600 support provided by CARES.
You can contact the State Workforce Agency or the state Unemployment Insurance office to speak to experts who can assist you with your claim.
Each state has varying eligibility criteria for claiming unemployment insurance. Applications can be made online, by phone or in person.
Unemployment benefit amounts vary from state to state. The average claimant can expect to receive $387 per week (data from the US Labor Department as of year-end 2019).
The figure varies significantly from state to state and is not always reflective of the cost of living.
Last year, Mississippi paid out on average $213 per week, according to data collection. Massachusetts, in comparison, paid on average $555.
You can select from the drop-down menu on careeronestop.org for information on how to claim in your specific state.
The duration benefits are payable also depends on the state in which the claim is made.
Most states will provide 26 weeks of payments under normal circumstances.
During the recent pandemic, the length of time unemployment insurance can be claimed has been extended to 39 weeks.
It is estimated that almost 28 million individuals in the United States have no health insurance.
Nine states have opened up their health care exchanges under the Affordable Care Act this year, despite the Trump administration deciding against reopening exchanges under ACA during the pandemic.
These nine states include California, Colorado, Connecticut, Maryland, Massachusetts, Nevada, New York, Rhode Island and Washington. Some of these states have opened up enrolment only for those who have no coverage whilst others are only on short-term plans that don’t offer comprehensive benefits.
Some workers may be entitled to health care coverage under COBRA. This option can work out significantly more expensive but does provide workers the option to continue with a health care plan for limited periods in some circumstances such as job loss.
This option is available to workers who are furloughed due to the pandemic.
Another option to consider is to be added to a spouse or partner’s health insurance policy where allowed.
First of all, you may be wondering what exempt and non-exempt workers are and how it could be relevant to your situation.
Here’s a definition of each so you’ll be able to figure out which one applies to you:
Exempt workers are salaried employees who are normally paid on a pre-determined amount monthly. If exempt workers are placed on furlough, they would be entitled to a full day’s pay even if they only do one hour’s worth of work. As mentioned previously, employers have now decided to implement a no-work rule so employees cannot benefit from this.
Non-exempt workers typically are paid by the hour. If a non-exempt worker does any work during furlough, they must be paid, but only for the time they have worked. An employer may choose to cut hours or pay rates for non-exempt employees.
Hourly paid staff can be furloughed through a reduction in hours (if they usually work a 40-hour week, this may be cut to 15, for example) or by going onto a zero-hour contract.
They remain a contracted employee but there are no set hours for them to work – such as a server in a restaurant that is temporarily not offering dine-in options.
Non-exempt employees are also covered by FLSA rules and regulations whilst exempt employees are not.
Much like furlough, a layoff is a quick way for a business to cut costs, as payroll and benefits are often the biggest expenses for any company.
Although a layoff is considered a complete separation of the employee and the employer, it is not the same as being fired or a reduction in force.
A reduction in force describes a situation where the position itself is terminated and will not be filled again. A reduction in force is a permanent separation of the employee from their position and usually comes with severance pay and other stipulations for the employer.
Layoffs are almost always for economic reasons rather than performance or behavior issues (unlike being fired) and they are planned to be temporary. This means that there may be a ‘recall list’ – an idea of when and if an employee will be rehired for the job – although there are no guarantees.
An employee who is laid off may be offered a severance package. This might include a lump sum of money and/or COBRA payments to help pay for health insurance until the employee finds a new job or gets their own life and health insurance.
Some companies may offer laid-off employees an opportunity to apply for roles in the company that are still available or help them find another role elsewhere.
When an employee is laid off, they should be looking for other work. Claiming unemployment benefits can help the employee financially, but since there are no guarantees of a recall to work, it is always best to look for different work elsewhere.
We have some specific ideas about how to explain layoffs when applying for other work which might help.
Depending on the state, the federal Worker Adjustment and Retraining Notification (WARN) Act stipulates that employers need to give their employees 30–60 days’ notice of impending layoffs if they employ more than 100 people who have been employed for more than six months, or if they work more than 4,000 hours combined in a week (in the private sector).
If it is likely there will be a mass layoff (more than 50 employees), then the WARN Act requires more notice.
If there are business circumstances that are not ‘reasonably foreseeable’, like a sudden, dramatic downturn in the economy, businesses do not have to give 60 days’ notice, but they should give as much as possible.
The key differences between being furloughed and laid off center around the relationship between the employer and the employee.
Furloughed staff remain employed whereas laid-off staff are effectively separated from their employer.
In both circumstances, employees may be able to return to work in their original positions after the layoff or furlough is over, although for laid-off staff this is not a guarantee.
Layoffs tend to be for an indefinite period, whereas a furlough is designed to be finite – although the length of time an employee is to be furloughed may not be known.
Both furloughed and laid-off staff can file for unemployment benefits, but as furloughed employees are technically still employed, they do not have to prove they are job searching and can apply as soon as they stop receiving pay.
Laid-off staff may receive a severance package, but this is not the case with a furloughed member of staff.
Although the WARN Act is in place for layoffs, there are requirements for what is known as ‘mini-WARNs’ regarding furloughs, including:
- Keeping staff up to date about their furlough
- If the furlough is going to be extended
- When their furlough will end
- If there are any changes (if it is likely to become a permanent layoff, for example)
While employees cannot be fired while on furlough, if the economic situation does not improve (or worsens), then a furlough can become a layoff.
The usual layoff rules would apply, including any relevant WARN Act processes, which means that the employee should have sufficient notice of the change that is coming.
In terms of health and life insurances, furloughed staff usually remain on the company’s policy – this changes when a furlough becomes a layoff. In most cases, COBRA notices will be needed.
For any paid time-off benefits, furloughed employees may not have used them so they will need to be added to any severance pay offered.
You might wonder how being furloughed could benefit both the employee and the employer and what the pros and cons are of this process; as with most things, there are positives and negatives.
For employers, the pros of furlough could be the following:
Furlough means employers do not have to lay off valuable members of staff. This is a way for them to keep talent during slow periods and times of economic downfall, like Covid-19 or the recession.
It can also provide short-term help for seasonal businesses that are profitable at a certain time of year. This means they can endeavor to keep staff during the time the business is open.
Furlough can be a good cost-saving method for a company if/when they struggle financially. Businesses can furlough their employees for as short and as long as necessary, which gives the business some flexibility. Furlough is often a cheaper option to reduce staff costs, as there are no severance-package costs and no need to provide outplacement services.
It is at the companies’ discretion whether they would like to continue to provide their staff with their benefits package during the furlough period. If the company decides not to, this can also be classed as another cost-saving method. However, if they decide to proceed with healthcare, this might be an incentive for employees to remain with the company whilst they are being furloughed.
The whole furlough process is fairly straightforward for companies, whereas if they were to just lay off their staff it can be expensive, time-consuming and harm a company’s relationship with their staff.
Employers will not have to take the time to train and recruit new members of staff if they put their current team on furlough; this is especially good for seasonal businesses who offer water sports and other specialized work. This will save the employer time and money.
By having the opportunity to furlough staff, employers will have more flexibility and time to plan ahead, be it financially or with other business ideas.
For employers, the cons of furlough could be the following:
The main disadvantage of furloughing staff for the employers is the potential risk of losing their talent completely. Depending on how long they plan to pause employment, some staff members might use furlough as the perfect opportunity to seek new challenges.
The cost. Even though employers will be saving money by furloughing staff, they may need higher-level members of staff to cover some work. Also, as mentioned above most companies still allow their staff to keep benefits like healthcare, which can still be quite costly for the company.
Losing momentum. A big disadvantage to furlough is losing motivation from the workforce. Projects would have to be paused, which means it can take a while for staff to get back in the swing of things. This can cost the company time and money to get things started again.
Employees can also lose morale as they will not know what their future holds at the company. This can create an anxious workforce which could then, in turn, be unproductive.
For employees, the pros of furlough could be the following:
For most staff, furlough is better than being laid off completely. This also keeps the faith as the company has every intention of keeping you on, which is more positive than being let go completely. Most companies will also give you a return to work date.
Health benefits. Most companies will continue to provide healthcare (and sometimes other benefits) for at least a year.
You have time. Most companies will implement a ‘no work policy' that means you cannot work for the company whilst you are being furloughed. This will then give you time to look for other work if you want to change careers, or take time for yourself.
You will usually be entitled to state benefits, which can sometimes be more than your original salary.
For employees, the cons of furlough could be the following:
Employees can feel left in limbo as they are still employed, however cannot do any work (for the business they are employed by) and will not receive a salary. Some employees might be unsure as to when exactly they will return to work.
Benefits are not guaranteed. As mentioned above, most companies will still provide their employees with benefits; however, at the discretion of the company, some businesses might not be able to do this due to finances. This is rare but is still a big blow for employees.
You cannot take on full-time employment at another job whilst you are still furloughed. You might be able to take on part-time or temporary work depending on your company’s protocol – some businesses might not mind you taking on other work, whilst some might contract you not to.
Lose motivation. It can be difficult to return to work and pick up where you left off once your furlough ends.
Financial support. Depending on what state you are in, you might not be able to receive employment benefits, which can make the period where you are furloughed difficult financially.
There is a lot to consider when thinking about whether to furlough staff. There are negative and positive ramifications for both the employer and the employee, and both parties must do their homework and know where they stand.
For employers, choosing between a furlough and a layoff usually depends on the reason for reducing staff hours.
For seasonal and cyclical employees, furlough is the norm as there is a pre-determined timeframe when employees are not needed.
In uncertain economic situations, the choice may not be as clear-cut. It is usually about whether the reduced need for employees is likely to be short or long-term.
Furlough is a good choice for both employers and staff on a short-term basis, allowing employers to reduce their outgoings quickly while employees can seek unemployment benefits or other employment.
Each state has different rules around collecting unemployment. It is important to seek expert advice related to each specific state to check eligibility and entitlements so the maximum amount of unemployment benefits a worker is entitled to can be claimed correctly during times of furlough.
If the staff reduction is likely to be more long term, then a layoff is better for the company and, with a recall list, employees can be asked to come back to their positions when necessary, reducing the need to recruit and train new staff.
However, for employees who are laid off, the assumption is that they will not be coming back, so this might be considered a more permanent solution to an economic issue.