What is a furlough?
A furlough (as applied to an employee) is a temporary unpaid leave of absence or reduction in hours. The employer may mandate a furlough or seek volunteers from the workforce.
Generally, when an employee is furloughed, the employer expects the employee to return to work. Or in the case of a reduced work schedule, to return to the employee’s original schedule. Of course, some furloughed employees find another job and end up quitting.
Why do employers furlough employees?
When a company can’t make payroll due to lack of cash flow, they have to let employees go or furlough them.
The reduction in cash flow could be due to internal or external causes. The following are potential reasons an employer will furlough an employee:
- Seasonal downturn in business
- Local, national or global recession
- A government shutdown or partial shutdown due to a pandemic, terrorist attack, or severe weather event
- A lapse in funding (government agencies or non-profits)
Employers use furloughs to save money while retaining talent. With furloughs, an employer can spread the financial pain throughout the workforce instead of laying off employees.
How is a furlough different than a lay-off?
With a furlough, the employee remains employed by the organization. That means they still have benefits like health insurance. With a lay-off, the employee is terminated.
How does an employer decide who to furlough and who to lay off?
When an employer can’t make payroll, they have to make tough decisions that have significant consequences to the future of the business. It’s important to create a comprehensive plan before carrying out a reduction in the workforce.
An employer should answer the following questions before deciding which employees to furlough, which employees to lay off, and which employees to keep.
- Are we temporarily reducing operations or shutting down operations?
- Will some job roles be unnecessary during the reduction?
- Are we reducing hours for employees or forcing employees to take an unpaid leave of absence?
What are the potential legal issues with furloughs?
If an exempt (generally salaried) employee works any time at all during a workweek, the employee must be paid for the entire week.
An exempt employee who performs no work during a workweek may have their weekly salary reduced for that workweek as long as it doesn’t fall below the minimum salary required for exemption status. If this happens, the employee would no longer qualify for exempt status and the employer would have to pay the minimum wage and overtime.
Can employers require employees to be on call during a furlough?
Employers must understand the difference between ‘engaged to wait’ (which is work time) and ‘waiting to be engaged’ (which is not work time). The Department of Labor explains here: Frequently Asked Questions Regarding Furloughs.
- FAQs for Furloughs and Other Reductions in Pay, Department of Labor
- Layoffs, Furloughs and More, California Employers Association