During the COVID-19 pandemic, Scandinavian Airlines requested 90% of their employees to cease working.
They were not laid off from their jobs.
They didn’t go on to find new jobs.
They didn’t receive any salary for the time being, but kept receiving company benefits.
AND they were assured of their job security.
So what exactly happened?
When a business hits a rough patch for one reason or another, it immediately resorts to a budget cutdown, with staffing changes becoming the most preferred tool.
But this was a different case. Instead of laying off employees, organizations may choose to furlough them.
Furlough is just one of the ways to implement staffing modifications, especially when laying off does not make sense.
Let’s dive deeper.
Furlough Meaning
It’s a transient leave of absence from work — typically unpaid, and mandated by the employer.
Businesses use furloughs during economic downturns or other challenging adversities to cut costs, when not going forward with layoffs or salary reductions.
Employees on furlough often retain all the benefits their job has to offer (like health and life insurance), and are expected to return to their jobs once the furlough period ends: since they are still considered employees during the furlough period.
Furlough Definition
A furlough is putting an employee in a temporary non-duty, non-pay status due to lack of work or funds, or other non-disciplinary reasons.
The concept of “furlough” originated in the military during the 17th century, where it implied a temporary leave of absence granted to soldiers—allowing them some time away from their duties for rest and recovery.
Then later it was adopted in civilian labor practices, where employers used furloughs as a way to reduce labor costs without permanently laying off their employees.
Today, furloughs are common in innumerable sectors, and the concept remains the same — emphasis on temporary leave with the ultimate intent of returning to work down the line.
It can be due to economic conditions affecting one company, or matters affecting the whole country (like a pandemic or a period of recession).
Furlough is used as a strategy to reduce business costs while keeping employees in a job. While employees don’t get paid for the time of furlough being — they retain all the perks offered by the job, and can often apply to leave the job as well.
Furlough in US Federal Government 2024
In the United States, government shutdowns occur when funding legislation required to finance the federal government isn’t passed and the fiscal year begins before that.
During a shutdown period, the government ceases non-essential operations and furloughs non-essential workers—keeping only essential staff (including the president and members of Congress, all of whom continue to receive pay) to protect life or property.
This practice of Furlough first began in 1980 after Attorney General Benjamin Civiletti’s legal opinion demanded it. Although inconsistently applied in the 1980s, since 1990, any funding gap lasting more than a few hours has resulted in a shutdown. There have been 10 such shutdowns as of February 2024.
Notable shutdowns include the 21-day shutdown in 1995–1996 over spending cuts during President Bill Clinton’s term, the 16-day shutdown in 2013 during President Barack Obama’s term over the Affordable Care Act, and the 35-day shutdown in 2018–2019 during President Donald Trump’s term over U.S.-Mexico border wall funding (which led the government to furlough 800,000 federal workers).
Shutdowns cause huge disruption of government services and programs, close national parks and institutions, reduce government revenue, and slow down economic growth.
For example, the 2013 shutdown cost the economy $24 billion and reduced GDP growth by 0.6 percent, according to Standard & Poor’s.
Even in 2024, the federal government of the US avoided a shutdown that could have impacted millions of federal workers and military personnel, with the businesses and their employees that rely on the presence of those individuals for their livelihoods.
As per the news, the stakeholders now have until Sept. 30, 2024, to negotiate and propose a budget that will get a green signal with the presidential approval, and all of this during an election year—just to avert a shutdown.
How does Furlough work?
Firstly, the duration of furlough depends upon the circumstances faced by the employer.
For example, a furlough due to a pandemic would be long-term, but if it happens due to a budgetary constraint at an organization, it might last just for a few weeks.
Second, furlough duration depends from situation to situation.
For instance, vacation cottages and theme parks scale down their operations during the off-season and furlough most of their employees during that time.
In the case of government shutdowns, furloughs occur due to funding shortages, pausing agency operations until the legislature approves the necessary funds to resume work and pay employees.
Also, there are two kinds of furloughs — “full furlough” and “partial furlough.”
A “full furlough” is where an employee doesn’t receive pay for at least a full month. A “partial furlough” is where an employee doesn’t receive pay for only part of a month or is placed on a temporarily reduced schedule rather than being placed on a full furlough. Employers are supposed to decide upon their pay accordingly.
How to implement Furlough
Furloughs are required to be managed carefully to comply with the U.S. Fair Labor Standards Act (FLSA), the Worker Adjustment and Retraining Notification Act (WARN), and other federal and state labor laws.
The FLSA applies to most employers, and the U.S. Department of Labor provides detailed guidance on managing furloughs to ensure compliance with this act.
WARN applies to companies with 100 or more employees, and generally requires advanced notice for layoffs affecting more than 50 employees or a third of the workforce.
If furloughs extend beyond six months, they are classified as an “employment loss” or layoff under WARN, necessitating proper notification and adherence to WARN guidelines.
After you weigh through all the available options and conclude that Furlough is the last resort and it has to be implemented within your organization, here are the things to keep in mind:
1. You’ll be required to submit a furlough request to the UNC System Office for review and approval.
2. You will be required to send a minimum 60-day advance notification to employees before the commencement of the furlough if:
- the request is for a full furlough of at least 30 consecutive calendar days, and/or
- the request is for a partial furlough of at least 30 consecutive calendar days
Next, make sure to execute a furlough consistently for each member as per their employment type.
Furlough plans can consist of a combination of work units or the entire division. If multiple work units within a division are being considered, please submit one furlough plan worksheet that includes all affected work units.
Communication
The first thing you will need to do is alert your employees in advance about the upcoming furlough event – so it prepares them, and they can plan accordingly.
You can send the furlough notice letter to impacted staff members via email, with their paychecks, or the means they usually expect important information to come from (For eg, plant workers might expect a letter to their home addresses, etc).
Make sure you keep your point across in a simple language and a concise manner, and that your employees are fully informed about the upcoming changes.
Describe why you are sending the notice letter, what is happening and why, and how the move will impact worker benefits, paychecks, unemployment, and everything else.
Make sure you run these details by your legal counsel first to ensure the furlough is compliant with all regulations, and that you’re completely direct and to the point.
Last, as you’re in the process of furlough, you might need to extend it or cancel it early. For that, it’s highly recommended you keep additional letters regarding that on file so you don’t have to write them in a rush during that time.
How to Manage Furloughed Employees
Before anything, be available for your employees with empathy right after you send out the notice, since there are going to be a lot of questions in your employees’ minds, and you don’t want a mass spread of misinformation or any sort of friction. Here are some tips to manage the situation better:
1. Firstly, explain what the term furlough means (think of it as a paused employee – being on hold), how much they will be paid, and that they’ll be paid through the normal channels.
2. Explain how their holiday, benefits, or pension payments may be affected, and what happens if they get sick, or a family member gets sick while they’re furloughed. Also, don’t make promises you can’t keep about life beyond the furlough period.
3. Make sure that everyone knows who’s furloughed and who remains working and that non-furloughed employees know what the rules are with regard to their furloughed counterparts. Create a do’s and don’ts guide for everyone if necessary.
4. Keep the furloughed employees updated about what’s happening in the organization. A weekly in-touch newsletter, or monthly calls aimed specifically at furloughed employees is a great way to keep in touch with ‘paused’ employees.
5. If furloughed people are spread across a company, consider introducing furloughed employees to one another, so they can provide a support network since they’re all going through the same thing.
6. It can be a common thing that some parts of a team may be furloughed while others are still working, and it can obviously create tension. Bringing teams together for regular social activities or weekly Zoom cool-off sessions is a good way to maintain morale and make everyone feel part of the same team.
7. Suggest things that your team members could do during this time that will help their careers in the longer term and keep them occupied. This could include:
- Training/ upskilling opportunities – as per budget
- Volunteering within the community or a place that interests them
- Reading business/ sector-specific books
- Listening to relevant podcasts
Last, remember that they’re the same people you’ve been working with all the time, and they’re just on temporary leave.
Furlough vs Layoffs
As discussed earlier, furlough is a temporary leave of absence where employees are not working but remain employed and may or may not receive a portion of their pay during their time off.
Now, a layoff occurs when an employer temporarily or permanently lets go of employees due to various reasons, including financial challenges, company restructuring, or other business reasons.
It’s a separation from the job, although it differs from termination since there’s still a chance of being rehired if things improve. Read more about termination in the next section.
Furlough vs. Layoff
| Aspect | Furlough | Layoff |
| Employment | Temporarily paused but employed | Removed/separated from employment |
| Payment | Often involves reduced or no pay during the furlough period, but benefits might continue.
(Receives a percentage of wages) |
Generally, employees receive severance pay (if any) but that’s the last compensation, after that they lose all benefits.
(No payment) |
| Duration | Temporary | Permanent or long-term |
| Recall | Employees are expected to return to work after the furlough ends | No expectation of a return |
| Communication | The employee remains in contact with the employer | No ongoing employer contact |
| Job Security | It is temporary so employees will return to their position when the furlough period ends. | Loss of job security as the termination is permanent. |
Example of a Furlough:
Let’s say there’s an employee “K” at a cloth manufacturing company XYZ, and he gets placed on furlough due to the decreased demand during the season’s end.
During his leave period, K receives 50% of his regular pay and continues to accrue vacation time. He does not perform any work but remains in touch with the employer for updates nevertheless.
Also, he’s expected to return as soon as the manufacturing for the next season commences.
Example of a Layoff:
Now, let’s imagine that the same cloth manufacturing company XYZ goes through a huge loss during the season end, and the wisest decision at the moment is to reduce its workforce. So, the company lays off 3 employees — meaning their employment ends entirely.
Also, in this case, the laid-off employees receive a severance package and they’re not supposed to expect any re-employment with the company. This is an example of a layoff.
Furlough vs Terminations
The biggest differentiator when it comes to terminations and furloughs is that the latter is decided by the employer irrespective of an employee’s performance, but termination happens when an employee is at fault.
It does not guarantee job security, and there are negligible chances of a return to employment when it comes to termination.
Also, because terminations are related to employee actions, severance pay can be reduced or even eliminated. In most careers, businesses provide notifications (like write-ups) when an employee is close to being terminated.
Advantages of Furlough
While no one wants to be out of work, furloughs can be beneficial to either employers, employees, or both, depending on the specific circumstances:
For Employers:
- Furlough helps with saving costs for employers by reducing expenses concerning payroll for limited time.
- Furloughing helps retain trained and experienced employees, reducing rehiring and retraining costs afterward.
- Furloughing allows businesses to quickly adjust workforce levels in response to fluctuating demand without permanent layoffs.
- Furloughing helps employers comply with labor laws and government relief programs designed to protect employment.
For Employees:
- Furlough assures job security and continued employment for employees in the future.
- Furlough ensures a partial income for employees during periods of no work.
- Furlough often provides employees with benefits like health insurance and pension contributions during that time.
- Furlough allows employees to rejuvenate and upskill further – helping them with future career growth.
Disadvantages of Furlough
While furloughs provide a temporary solution for employers, they come with significant advantages and disadvantages for both employers and employees alike. Here are some disadvantages of furlough, for both employers and employees:
Disadvantages for Employers
- Furloughs can lead to a temporary reduction in the workforce causing delayed project deadlines – eventually disrupting business operations and productivity.
- Furloughs can create uncertainty among employees, lowering their overall morale and long-term loyalty.
- Implementing a furlough program creates additional administrative work for HR and management, including navigating complex labor laws and regulations.
- Furloughed employees might go on to seek other job opportunities, leading to a potential loss of valuable talent.
- Customers, suppliers, and investors might perceive furloughs as a sign of financial instability, impacting the company’s reputation and goodwill within the market.
Disadvantages for Employees
- Since furloughs involve unpaid leave, it obviously and significantly leads to financial hardship for employees, including other reduced benefits.
- The duration of furloughs is unpredictable, creating stress and making financial planning difficult for employees.
- Employers control the work schedule during furlough, reducing flexibility and limiting employee access to company resources and decision-making processes.
- Furloughed employees miss opportunities for skill development and advancement provided by the organization, unlike their non-furloughed counterparts.
- Uncertainty and feeling devalued can lead to stress, anxiety, and a sense of insecurity, affecting employee morale and confidence.
Furlough Examples
Below listed are a few examples of how furloughs have been implemented in different contexts:
Example 1: Seasonal Business
A theme park scales down operations during the off-season, furloughing most employees. Till then, workers are temporarily off-duty with a plan to return as the peak season begins.
Example 2: Economic Downturn
A manufacturing company faces reduced demand due to an economic downturn. To cut costs while retaining skilled workers, the company furloughs employees, paying them 80% of their regular salary until business improves.
Example 3: Government Shutdown
During a government shutdown, a federal agency furloughs employees due to a lack of funding. Staff are on leave without pay until the legislature approves the necessary funds to resume operations.
Example 4: Airline Industry
An airline faces a sharp decline in travel demand and furloughs pilots and cabin crew. The company retains their employment status, ensuring they can quickly return to work once travel picks up again.
Example 5: Retail Store
A retail store in a tourist area furloughs employees during the off-season when foot traffic is low. Staff members are given a return date for when the tourist season resumes, ensuring they have their jobs waiting for them.
Example 6: Construction Company
A construction company experiences project delays due to supply chain issues. To manage costs, the company furloughs part of its workforce, providing a return date once materials become available and projects can continue.
Wrapping Up
Furlough can work as a significant tool for cutting costs when things get tough and business is down. It becomes a good choice for employers mainly because they retain access to their workforce. Laying off employees means you’ll be spending time hunting for a skilled workforce again – just like starting your business anew.
FAQ
1. What does furlough mean?
A furlough is a temporary, unpaid leave of absence granted to employees, usually due to economic reasons or lack of work.
2. Do furloughed employees get paid?
Although furloughed employees do not receive regular pay from their employer during the furlough period, some organizations choose to offer benefits or a certain amount for employees’ sustenance for the time being.
3. How long is a furlough?
The duration of a furlough can vary widely, from days to months, depending on the employer’s needs and circumstances.
4. Do you get paid on furlough?
Generally, employees don’t receive wages or salary payments while on furlough, some organizations go on to keep providing certain benefits for sustenance and security to its employees.
5. How long can a company furlough an employee?
The length of a furlough is determined by company policy, labor laws, and the reasons for the furlough, which usually range from short-term (like days) to indefinite periods (like months).
