What Does Furlough Mean? A Complete Guide

As an HR professional, understanding furloughs can aid your company in retaining valuable employees during challenging business times. But what does it really mean?

This article will define furloughs and lay off, the differences between the two, what impact they have on employees, the different types of furloughs, and the rights and responsibilities of employers and employees in furlough situations.

1.0 What does furlough mean?

A furlough is when an organization places an employee on temporary leave from work and does not pay them due to a lack of work, funds, or another need for the employee's labor. The employee is still affiliated with the company and often maintains benefits like health insurance.

Placing employees on furloughs is a way for a company to reduce its costs. Employees on furlough may be eligible for unemployment benefits, and the HR department must manage communication between the company and the furloughed and non-furloughed employees.

Organizations should evaluate whether furloughs align with competitive market pay before implementing workforce changes. CompAnalyst® enables HR professionals to compare internal pay with current market rates, helping determine whether temporary furloughs are a better alternative than permanent workforce reductions.

1.1 Furlough and layoff: What is the difference?

Furloughs and layoffs both affect the workforce during difficult times, but they differ in keyways, especially regarding job security and benefits.

Aspect	Furlough	Layoff
Employment status	Employees remain employed with expectation of return	Employment usually ends permanently or for a long time
Pay	Typically, unpaid temporary leave	No pay after separation; possible severance pays
Benefits	Often continue (health insurance, etc.	May end; COBRA options available
Unemployment benefits	Furloughed employees may collect	Laid off employees usually eligible
Duration	Temporary, with recall planned	Can be permanent

1.2 How furloughed employees are affected?

Furloughed employees face several changes in their daily work life and finances, but they usually retain more connections to their employer than laid off workers.

• Income and unemployment benefits: Furloughed individuals will not receive their salary; however, they may be able to apply for unemployment benefits in many states.

• Health benefits: Many individuals will still have their health benefits through their company; however, they will be responsible for paying for their portion of the plan.

• Vacation time: Employees may be able to use their accrued vacation time while on furlough.

• Job security: Those on furlough typically have a better chance of rejoining the company than those who were laid off, but there is no guarantee that they will be able to return to work.

Organizations should clearly communicate the value of compensation and benefits that remain available during furloughs. CompAnalyst® helps HR provide employees with a personalized view of their total rewards package, improving transparency during periods of uncertainty.

2.0 What types of furloughs and employee rules should you know?

HR professionals should know the main types of furloughs to apply the right rules for salaried employees, exempt employees, and others.

• Company furlough: A furloughing decision made by the company itself, typically due to economic or sales reasons.

• Administrative furlough: Furloughing decisions made by agencies for budget reasons.

• Emergency or shutdown furlough: Typically triggered by events like a federal government shutdown, this furlough impacts federal government employees and workers.

2.1 Administrative furloughs vs. company furloughs

Administrative furloughs and company furloughs serve similar cost-saving goals but occur in different contexts and follow distinct procedures.

Type	Description	Typical application
Administrative	Planned, often for budget or downsizing	Government or large organizations
Company	Business-driven due to market conditions	Private sector to handle decreased sales

2.2 How do federal government shutdown and emergency furloughs work?

Federal government shutdowns and emergency furloughs occur when funding lapses, placing non-essential federal workers in non-pay status.

• Excepted employees will continue to work to ensure the safety of the government and its critical functions.

• Federal employees will receive back pay once the government has resumed funding.

• Federal employees who were laid off will still receive their health insurance benefits during this time.

• Federal workers who were laid off will be eligible for unemployment benefits, which will be repaid to the government upon receiving their back pay.

2.3 How do furlough rules differ by employee type?

Furlough rules vary significantly based on whether workers are exempt from employees, non-exempt, union workers, or seasonal employees.

• Salaried exempt employees: Must receive full salary for any week with work performed under the Fair labor standards act.

• Non-exempt hourly workers: Only paid for hours worked, making it easier to adjust their pay.

• Union workers: Governed by specific terms of union agreements.

• Government employees: Have specific rules regarding their pay during government shutdowns.

3.0 What rights do furloughed employees have?

Furloughed employees retain several important rights, including the ability to seek new employment while staying linked to their current employer.

• Unemployment benefits: Eligible in most cases during unpaid leave of absence.

• Health insurance: Continuation of health insurance is common.

• Recall rights: Upon the end of the furlough, employees are generally to be recalled to their jobs.

• WARN act protections: Applies in cases in which the layoff is for more than six months.

3.1 What protections are available to furloughed employees?

Protection helps furlough workers during the challenging period.

• Health benefits and sometimes additional coverage will still be provided.

• Anti-discrimination laws will still apply to any employment changes.

• State laws regarding notice and pay vary.

• Employees can consult with a lawyer regarding their specific situations and rights regarding accrued vacation and other employee benefits.

Organizations seeking to validate their compensation practices can conduct formal reviews using CompAnalyst® Pay Equity Suite, which helps employers identify potential pay disparities and demonstrate their commitment to equitable compensation.

3.2 When can a furlough become a layoff?

A furlough can turn into a layoff if it lasts longer than expected, often beyond six months, triggering different obligations.

• Exceeding six months may count as employment loss under WARN Act.

• Employers may need to provide advance notice to furloughed employees.

• Severance pays could become relevant if furloughed employees are made permanently separated from the organization.

• Impact on the organization's remaining employees and new employees.

4.0 How should employers manage a furlough?

Employers should manage a furlough thoughtfully to support furloughed employees and maintain operations with remaining employees.

1. Notify the employees of the furlough.

2. Review labor and employment laws to ensure compliance with the fair labor standards to act and any applicable state laws.

3. Plan the processes to be undertaken when the furlough ends.

4. Continue to connect with the furloughed employees to maintain morale.

4.1 How do you furlough an employee?

To furlough an employee, follow structured steps that respect legal requirements.

1. Notify the employees of the furlough.

2. Review labor and employment laws to ensure compliance with the fair labor standards of act and any applicable state laws.

3. Plan the processes to be undertaken when the furlough ends.

4. Continue to connect with the furloughed employees to maintain morale.

4.2 What are the best practices for furloughing employees?

Best practices focus on fairness and communication for HR professionals.

• Be transparent about the reasons for the length of the furlough.

• Ensure that furloughed employees continue to receive the same benefits as they do currently, such as healthcare plans.

• Provide resources and assistance to employees to find new employment or to deal with unemployment.

• Make a plan for re-introducing the furloughed employees into the company should it become possible to do so.

4.3 How can employers stay compliant during a furlough?

Employers stay compliant by understanding key laws and consulting experts.

• FLSA rules: Important for exempt positions and the hours they put in.

• WARN act: Make sure the duration of the WARN act is respected.

• State laws: These vary from state to state.

• Consult legal counsel: If the employees are union or government employees.

5.0 What should employees do during a furlough?

Employees should take proactive steps to protect their finances and careers during a furlough.

Apply for unemployment

• Maintain skills - use time for training or to get a new job if needed

• Stay in touch with current employer

• Review any health benefits and other benefits company may offer

6.0 FAQs

Here are some FAQs for better understanding.

6.1 Do furloughed employees get back paid?

Furloughed employees do not typically receive their payback unless stated in the company's policy or employee contract. Federal government employees are promised back to pay once the funding is approved to the federal government as stated in the laws governing their positions, such as the Government Employee Fair Treatment Act. However, it is best to check the employment agreement and the rules of the state in which the federal government employee works.

6.2 Is it better to be laid off or furloughed?

It depends on the situation. A furlough is more beneficial to the employee as it provides job security and the ability to be recalled when needed. A layoff provides severance of pay and access to unemployment but ends the employment relationship with the company. Furloughs are used by HR professionals to keep employees during difficult periods for the company.

6.3 Do furloughed employees get back pay?

Similar to the first FAQ, employees that are furloughed within the private sector are not typically entitled to back pay. However, federal government employees that are laid off during a government shutdown are entitled to pay back. Each employee's contract may vary, however. Therefore, each employee should review their contract or consult with HR regarding the specifics of their contract. Company policies may vary from company to company.