What Does It Mean to Be Furloughed?

When companies encounter hard times such as decreased sales, they sometimes need to make hard decisions to keep the company afloat. These decisions may impact their employees. Layoffs or furloughs can save a company money, but at the cost of potentially losing good workers.

Unlike a layoff, a furlough doesn’t necessarily mean you’re parting ways indefinitely with your employer. Here’s what it means to be furloughed and how it typically works.

What does it mean to be put on furlough?

An employer facing a tough financial situation can reduce costs while retaining employees by putting them on furlough rather than laying them off. A furlough is a temporary, unpaid leave. It’s temporary because your employer expects to be able to rehire you.

How do furloughs work?

An employer will notify employees that they are being placed on furlough, which means they will not work for a period of time nor will they be compensated during the time that they do not work. Employees may be able to keep their benefits (such as health insurance), but because they are not paid through traditional payroll during this time, they can usually file for unemployment through their state to keep some income during the furlough period.

When placing employees on furlough, an employer must follow rules established by the Fair Labor Standards Act (FLSA), which vary by type of employee. Non-exempt employees (who are employees that are typically paid hourly under a certain amount) can be furloughed by having their work hours reduced. That way, they are still getting some pay. (Of course, they must be paid at least minimum wage.)

Exempt employees are typically salaried. The FLSA requires that salaried employees are compensated their full salary in a week that they work, so to furlough exempt employees, companies will typically require that they take time away from work in week-long increments. It’s important that during this time, employees should not work at all—including sending work emails or making work calls.

Over time as their finances improve, the employer can return its employees on furlough to their normal schedules and regular payroll.

How long can a furlough last?

Most furloughs last a few weeks to a year, but they can be as short as a few days. While they usually do not last more than a year, the legal maximum can depend on your state and your industry.

Furloughed employees, especially seasonal employees, are sometimes told in advance how long the period will last. If you’re not informed, it can be emotionally draining not knowing when you’ll return to work. Budgeting can become very difficult, too. Hopefully, you’ve built a hefty emergency fund to help you in the short term, and if you need to find other sources of income, a Northwestern Mutual financial advisor can help make recommendations for making ends meet without impacting your long-term goals too significantly.

Can a furlough turn into a layoff?

Employers should only furlough an employee if they anticipate being able to return the employee to the regular payroll. If an employer’s financial situation doesn’t improve as expected, it is possible for a furlough to become a permanent layoff. For example, an employer could go through a restructuring or introduce significant automation that would eliminate jobs. If you find yourself in a situation where you’re furloughed, it could be a good idea to prepare and think through the steps you’d take if your furlough became a layoff.

What about military furlough and government furlough?

Sometimes a government furloughs employees that are not in the service while a legislature votes to resume funding. These events typically make headlines as a “government shutdown.” Active duty and reservists, however, are sometimes exempt from large-scale federal furloughs in the interest of national security.

What’s the difference between a furlough and being laid off?

While being laid off means that your employment has been terminated, a furlough is different because it’s meant to be a temporary break from your job. If being furloughed seems preferable to being laid off, that’s because in many ways, it is. Employers use furloughs to reduce labor costs without the added expenses of severance packages, making it easier to recover and bring employees back to work. There’s also a chance you get to keep your benefits if you’re furloughed.

There’s a big difference in mindset for an employee who is being furloughed versus being laid off. Employees who are laid off can get past their frustration and move on to their next opportunity. The temporary aspect of furloughs creates a lot of uncertainty for the employee. The uncertainty is difficult for the employee and their loved ones who must make practical decisions based on their new budget. For example, the employee might wonder about cancelling childcare and potentially losing the spot to a family on the waiting list.

Duration

Perhaps the biggest difference between a furlough and a layoff is the length of the break with your employer. A furlough can only last a maximum of 52 weeks, but often the break in employment is shorter than that. With a layoff, you’re ending your relationship with your employer permanently.

Compensation while out of work

For both furloughs and layoffs, you may be eligible to collect unemployment in your time away from work. One benefit of a layoff, as opposed to a furlough, is that you may be eligible for severance pay. A layoff could be better in the long run for an employee who gets a generous severance package.

Paid time off

When it comes to accrued vacation time, people who are laid off can sometimes receive a payout for unused vacation time. This wouldn’t usually apply to furloughed workers because their employer expects them to return to payroll.

Medical insurance

Some employers allow furloughed workers to keep benefits like medical insurance. Workers who get laid off generally are not granted benefits (but are offered medical coverage if required by the Consolidated Omnibus Budget Reconciliation Act known as “COBRA.”)

If your spouse has the option of a health insurance policy through their employer, you may be able to join their plan. A furlough is considered a “qualifying life event,” so even if you’re not in the open enrollment period, you may still be able to switch plans.

Can I ask my employer to furlough me?

An employer that is reluctant to undertake a mandatory layoff may ask for volunteers. That way, employees who are comfortable with their savings or live in a two-income household can step forward, allowing other employees to maintain their full income.

Sometimes, an employee may request a voluntary furlough for personal reasons, even if their employer is financially stable. An example might be an employee who wants to pursue an advanced degree but cannot attend school and work full time. This might be similar to a sabbatical requested by a tenured employee.

Can you quit your job if you get furloughed?

Quitting your job while furloughed is certainly an option, but don’t count on receiving assistance if you do. While it’s up to the employer, severance is not typically offered to those who decide to leave their job willingly. The same is true for unemployment insurance from your state. And you will probably lose your benefits, including medical insurance, if you simply quit. All in all, there is a huge financial impact to quitting. Ideally, you’ll find another job to transition to before you leave your current employer.

What should you do if you are furloughed?

Try to consider the furlough as a gift of time and put your newfound free time to good use. Indulge in the hobbies or self-development activities you couldn’t find time for while you were working. Do low-cost activities that make you feel good: write in a journal, complete odd jobs at home or take long hikes. Keep your social connections strong by joining networking groups or volunteering.

But, it’s also important to engage in some strategic financial planning to make sure your financial goals stay on track in the meantime. A good financial plan can help you keep a positive mindset and feel prepared for the future—no matter what it brings. A Northwestern Mutual financial advisor can work with you to create your plan that can adapt to unplanned turns.