Furlough

Nick Staley
Furlough may not be a familiar word or concept to you. What is it? How is it different from simply terminating employment? Let’s consider the pros and cons to consider in the decision between laying off or furloughing employees, and making the best of a difficult situation.

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What Is a Furlough?

A furlough is essentially a layoff. The difference may not matter to the employees, but there are some major differences to the company. Knowing what a furlough is and when it’s appropriate is important.

Furlough vs Layoff

So what are the differences? If you furlough an employee, they are out of work for a period of time, but are still technically employed by the company. It’s important to note that the period of time does not have to be specified. One way to think about a furlough is as a leave of absence that the company forces employees to take. If an employee is furloughed by a company, the company can bring them back at any time. A layoff, on the other hand, is exactly what it sounds like: the employee is out of job, plain and simple.

What Being Furloughed Means for the Employee

Being furloughed really doesn’t look all that different to the employee from being laid off. However, when an employee is furloughed, they are still technically employed by the company, even though they aren’t working for a period of time. They do remain eligible for benefits.

Types of Furlough

There are two main types of furloughs. They mean the exact same thing to the employee, but different things for a company.

Type 1: Shutdown Furlough

We often see shutdown furloughs in the construction industry. Once it gets too cold to be able to do certain tasks outside, you don’t need as many employees, so you furlough them until the weather warms up and you can continue your business as usual. Airlines also use this approach with their employees. If the demand for air travel dips, they furlough their pilots and flight attendants (among other employees) to provide flexibility in scheduling and meeting customer demand. A shutdown furlough occurs when a company no longer has the funds needed to continue to pay its employees and is working to secure funding in order to continue to employ its people.

Type 2: Administrative Furlough

An administrative furlough could also be called a planned furlough. In these instances, the company may be planning to make changes to its product or may be planning construction in the office space and remote work isn’t an option (think fast food companies who remodel). The purpose of administrative furloughs is to keep the workforce intact through planned changes.

Pros of Furlough

There are advantages to using a furlough model.

Pro 1: Flexibility

When you furlough employees, you give your company the flexibility to make it through a certain time period.

Pro 2: Keep Your Workforce Intact

Through a furlough, you can keep your work force intact and not have to hire and train new employees. When an employee goes out on furlough, you can call them back at any time. This doesn’t mean they are required to come back, but it gives you the option.

Cons of Furlough

Furloughs don’t always result in what you wanted them to.

Con 1: You Could End Up Replacing Them Anyway

As we stated above, employees don’t have to return when you ask them to. They are entitled to go look for other work, which means you may end up having to replace them anyway.

Con 2: Negative Impact on Morale

Any type of layoff has a negative impact on morale. The veterans of industries that use furloughs frequently don’t think twice about this type of thing, but new people just getting into the industry may have a difficult time understanding and getting through a furlough, which in turn creates an overall negative impact on morale. The uncertainty of having continued employment is a difficult mood to manage.

Con 3: Continued Costs

It can be expensive to furlough your employees. While you aren’t necessarily paying them wages, you are still responsible for paying their insurance premiums—usually without paycheck deductions from the employees. Since the employees will be eligible for unemployment insurance during a furlough, those premiums may rise as well.

How HR Should Handle a Furlough

Now that we’ve discussed what a furlough is, let’s dive into what you should do as an HR professional before a furlough occurs.

Step 1: Determine Who Will Be Furloughed

As the HR professional, it is usually going to be up to you, with some guidance from management,to determine who gets furloughed.You may want to keep the furlough process confidential, or you want to be transparent about how you select people who go on furlough. (We recommend using a transparent approach.) In general, it is done by seniority, so the newest hire is the first person to get furloughed and the person that has been there the longest is the last. This isn’t always the case, so it’s up to you to determine who and in what order the furlough will occur. Perhaps it makes more sense to do it by department or by levels of your organization. You decide what works best for your company and the situation.

Step 2: Provide Documentation

In some states, you are required to give advance notice of a furlough if you know it is going to happen. If your employees are part of a union, you may also have to abide by the rules set forth in the collective bargaining agreement. If none of these apply to you, just provide written notice to your employees that they are being furloughed. If you know the length of time of the furlough you can state that as well, but in general it’s best to leave the time frame vague.

Step 3: Calling Employees Back to Work

The furlough is drawing to a close and it’s time to start calling your employees back. If you aren’t returning all of your employees at once, you will need to create a process to bring them back similar to the model you created when you determined who would be furloughed.

What do you do if they refuse to come back? In most instances, this would be considered job abandonment and a voluntary resignation.

Step 4: Returning to Work

Even though your employees are back, your work isn’t quite finished. If you had employees who continued to receive insurance benefits, there will likely be a need to catch up on missed payroll deductions. There are also likely going to be questions about future job security. Again, we recommend always being as transparent as possible. This means that if you think a furlough may be possible again in the future, you shouldn’t make any guarantees that it won’t happen again.

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Questions You’ve Asked Us About Furloughs

How long can a company furlough an employee?
There is no set period of time that an employee can be out on a furlough. Generally, we don’t see furloughs last longer than a year, but it’s possible.
Can an individual collect unemployment if they are furloughed?
Yes. In this regard, the Department of Labor considers a furlough and a layoff the same thing. Employees are entitled to collect unemployment only if they don’t get another job while on furlough.
Nick Staley

Nick is a certified HR professional holding an SPHR and SHRM-CP. Nick has built HR teams from the ground up as well as worked for big corporations. Nick enjoys consulting and training those who are just getting started in HR. When not working, he enjoys spending time with his family.

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