What Is an Employee Furlough? (And Why Do Employers Use Them)

A Significant Factor Involved in Saving Business Costs

An employee furlough, while not a positive employee experience, beats a layoff.
Steve Debenport/E+/Getty Images

Employee furloughs are a positive alternative to layoffs, but they have negative consequences, too. Employee furloughs are mandatory time off work with no pay. In a furlough situation, it's critical to enforce the no work rule.

Exempt employees who do so much as answer an email are entitled to a full day's pay, so make the rules specific. You may wish to tell employees to leave their devices at the office, or stop your servers from delivering email.

This may seem drastic, but the point of a furlough is to save the organization money. You can't do that if you have to continue to pay people.

If a non-exempt employee performs any work during the furlough, he must also be paid, but only for time actually worked.

Who Uses Employee Furloughs?

Used as an alternative to a layoff, employee furloughs can occur in both 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.

Some companies have regular furloughs. For instance, a lawn care company will shut down after fall cleanups are done and not reopen until spring comes. However, seasonal work isn't the only time when furloughs can occur.

When a factory has difficulty getting their suppliers to provide enough materials, it makes sense for a company to go on furlough rather than to continue to pay employees who cannot make the product.

How Does an Employee Furlough Work vs. a 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 rights of recall and no expectation of the job returning.

In a furlough, employees are usually given a time frame (although this sometimes changes, especially in a product shortage situation).

To schedule employees with a contract, including union-represented employees, for employee furloughs, employers must renegotiate the contract.

The negotiations about employee furloughs generally include a call-back date..,

Examples of employee furloughs include closing a business for two weeks, reducing employee time on the job to three weeks a month instead of four, and asking employees to take two days a month off without pay. Other employees have been put on furloughs indefinitely.

During employee furloughs, benefits usually continue, which is one of the employee furlough's differentiating factors from a layoff, where benefits generally end either at the last day of work or at the end of the month. (Companies can, and do, extend benefits as a part of severance packages.)

Some states have implemented work sharing programs. Work sharing is an 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 allows the employees not to suffer as much as in the case of a furlough.

When the Federal or state governments implement employee furloughs, the employees are usually paid for the time on furlough when the budget crisis is over. This, of course, is a bad deal for the taxpayers who must pay salaries for time when no work was performed.

Final Tips on Employee Furloughs

If you're considering implementing a furlough, make sure your communication is clear and consistent with the employees. Don't talk about the need for cost savings by furloughing your hourly employees while the management team receives bonuses. It's critical that you maintain this as a group effort.

This doesn't mean that you have to furlough everyone. It may make sense to furlough the manufacturing team while the marketing team continues working.

These are the advantages and disadvantages of employee furloughs. Consider these before you implement a furlough program or a layoff. There are advantages and disadvantages to each one.

Continue Reading...