Furlough: What It Is, How It Works, FAQs

What Is a Furlough?

A furlough is a temporary layoff, an involuntary leave, or some other modification of normal working hours without pay for a specified duration. Businesses use furloughs for a variety of reasons, such as plant shutdowns, or when a broad reorganization makes it unclear which employees will be retained.

Governments sometimes furlough employees when there isn't enough funding, such as during a shutdown.

How a Furlough Works

In contemporary business practice, furloughs are less-permanent solutions than layoffs are. They are useful for situations in which the economic conditions prompting the furloughs are not expected to last for long. They are also common in situations in which business disruptions are deemed to be temporary—for instance, many businesses furloughed employees when the COVID-19 pandemic struck.

Furloughs vs. Layoffs

Furloughs are temporary cessations of work characterized by employees retaining their jobs but not getting paid. Employees keep their benefits during furloughs and anticipate returning to work within a certain period.

Layoffs, on the other hand, result in permanently discharged employees who do not expect to get their jobs back. For employers, one of the main advantages of furloughs over layoffs is that they can call back trained workers when conditions improve rather than hiring and training new employees.

Examples of Furloughs

During economic downturns, some companies reduce costs by imposing several mandatory unpaid days off per week, month, or year. For instance, a company might initiate a policy requiring its employees to take four days off between Christmas and New Year's, reducing their accrued leave or paid time off. This qualifies as a furlough because the employees would lose four days of their paid vacation allowance.

Other furloughs are seasonal. For example, companies providing landscaping and lawn care may furlough their employees when they shut down for the winter. Alternatively, factories might furlough their employees during temporary shortages of materials and call them back when the factories have been resupplied.

Government shutdown furloughs may occur when political bodies do not appropriate sufficient funds during a fiscal year to pay government workers. During these types of furloughs, government agencies must cease activities until legislatures vote to release the funds. In 2018, the United States experienced its longest government shutdown in history, lasting from Dec. 22, 2018, until Jan. 25, 2019, for a total of 35 days. The shutdown was estimated to have caused hundreds of thousands of federal employees to be furloughed throughout the shutdown.

Furlough Requirements

Furloughs apply differently to nonexempt (hourly) and exempt (salaried) employees. Employers can legally impose furloughs on hourly employees but must cut their workloads to match the cut in hours, as nonexempt employees must be paid for every hour they work. On the other hand, exempt employees, who are paid predetermined salaries weekly or monthly, generally cannot work during furloughs. If they do any work at all, they must be paid their full salaries with certain exceptions.

The Bottom Line

A furlough is an unpaid leave of absence from work with the expectation of being brought back sometime in the future. Businesses use furloughs to reduce workforces and retain talent when financial circumstances require it.