What is an Employee Furlough?

Employee furloughs are situations in which an employee takes mandatory time away from the job, while still retaining his or her status as an employee. There are a few key differences between a furlough and a layoff, most of them having to do with the duration of the period and the benefits that the employee retains while away from work. In spite of the advantages, there are also a number of liabilities associated with furloughs that impact both the employer and the employee.

Inherent in the definition of an employee furlough is the presence of a specific date to return to the workplace. This is in contrast to a layoff, which may be indefinite. For the period of the furlough, the employee may receive some sort of limited compensation, although in most cases, the employer pays no compensation. During the furlough, the employee does retain benefits such as health insurance, and the ability to participate in retirement programs and profit sharing.

An employer benefits from the implementation of an employee furlough in several ways. The most obvious is the savings on employee wages and salary. This can save the employer a great deal of money, especially if the furlough involves several employees, or is scheduled to continue for an extended period. At the same time, the employer has access to a bank of qualified employees that can be called back into active service should the condition of the company improve, eliminating the need for new hires that will require a period of orientation and training before assuming their duties.

In some jurisdiction, there are state and federal furlough provisions that make it possible for the employee to receive unemployment compensation while on furlough. This can partially offset the loss in income that the employee experiences, and can also come in handy to help cover any partial payments for health insurance and any other benefits where the employer and employee share expenses. The exact structure of federal and state furlough laws will vary from one jurisdiction to another, making it necessary for anyone facing an employee furlough to become familiar with those laws.

While an employee furlough does save company money, the drawbacks may outweigh the benefits. Depending on the number of furloughs that are implemented, the corporate culture can be adversely affected. Clients may be unhappy having to deal with new contacts, thus damaging customer relations efforts. The remaining employees must take on extra responsibilities due to the temporary decline in the employee force, which may undermine morale and productivity.

An employee furlough also affects the furloughed employee in more ways than a decrease in income. During the furlough, they cannot accept employment from a competitor, and may have trouble securing temporary employment of any kind. Maintaining health insurance may be difficult, unless the employer is covering the entire cost. There may also be some emotional issues that arise as a result of the furlough, which in turn could negatively impact relationships with family and friends.