Furlough

Furlough Meaning Explained: Complete Employee Guide (2025)

A furlough is a temporary cessation of work without pay for a specified duration while maintaining employment status. This unpaid leave of absence is implemented by employers with the expectation that workers will return to their positions in the future. 

Unlike permanent terminations, furloughed employees retain their jobs and benefits, including healthcare coverage, despite not receiving a salary during the furlough period.

Furloughs are essentially temporary modifications of normal working hours that businesses implement for various reasons. Employers may institute furloughs during plant shutdowns, broad reorganizations when employee retention decisions remain unclear, or when facing economic pressures requiring temporary reduction in payroll costs. Furthermore, government agencies sometimes furlough employees during funding shortages, particularly during government shutdowns.

The term “furlough” derives from the Dutch word “verlof,” meaning “leave of absence”. In contemporary business practice, furloughs serve as less permanent alternatives to layoffs, particularly beneficial in situations where:

• Economic conditions prompting workforce reduction are expected to be temporary
• Business disruptions are anticipated to be short-term, such as during the COVID-19 pandemic
• Companies wish to retain trained talent for rapid recovery when conditions improve

For employers, one significant advantage of implementing furloughs rather than layoffs is the ability to recall trained workers when business conditions improve. This strategy eliminates the need to hire and train new employees, thereby reducing recruitment costs and maintaining institutional knowledge.

As noted by David Cote, who led Honeywell during the Great Recession, this approach enabled his company to recover more quickly once economic conditions improved.

Furloughs may vary considerably in structure and duration. Some organizations reduce working hours per week, while others implement extended periods of leave. Although most furloughs are temporary, they can last up to six months before an employer must determine whether furloughed staff will return. This flexibility allows businesses to adapt to fluctuating economic conditions while preserving their workforce.

A complete furlough occurs when a company requires employees to take unpaid leave entirely, whereas a partial furlough might involve reduced working hours. During either arrangement, the employment relationship remains intact, with employees maintaining their status and anticipating a return to normal work schedules when circumstances permit.

The distinction between furloughs and layoffs is critical. While furloughed workers remain employees with the expectation of returning, laid-off workers are permanently discharged without such expectations. This distinction affects not only employment status but also employee benefits, unemployment eligibility, and future employment prospects.

In essence, furlough serves as a strategic workforce management tool that helps organizations navigate temporary financial difficulties while preserving their talent pool for future recovery.

How does a furlough work?

Implementing a furlough involves a structured process that begins with management determining the need for temporary unpaid leave. The decision generally occurs through a formal meeting where economic conditions, budget constraints, and financial impacts are thoroughly assessed. 

Subsequently, employers must establish the furlough duration, affected departments, and whether the arrangement will involve complete work stoppage or reduced hours.

Furloughs typically follow two main formats. The first is a one-time furlough, where employees are temporarily removed from work with a scheduled restart date. The second is a rolling cycle furlough, where employees take turns being furloughed at regular intervals, perhaps once every three weeks. 

Companies with seasonal operations occasionally implement regular furlough periods based on predictable business cycles.

For organizations facing temporary economic pressures, furloughs provide flexibility to reduce payroll costs temporarily. According to industry experts, labor costs including payroll tax and employee benefits can represent approximately 70% of operating expenses for many organizations. This explains why companies often look to this area first when needing to quickly reduce expenses.

When selecting which employees to furlough, human resources departments typically follow established criteria with guidance from management. The most common approach involves using seniority, where the newest hires are furloughed first and longest-tenured employees last. However, if employees belong to a union, the company must adhere to rules outlined in collective bargaining agreements.

Crucially, throughout the furlough period, affected individuals remain technically employed by the company despite not working. This employment status distinction carries significant implications:

• Furloughed employees generally retain eligibility for benefits like health insurance
• They are not eligible for severance pay, early retirement benefits, or outplacement services
• Depending on state regulations, they may qualify for unemployment compensation

Legal compliance represents a critical consideration when implementing furlough programs. Organizations must follow relevant federal and state wage and hour laws, recognizing different requirements for exempt versus non-exempt employees. Exempt employees (those in executive, administrative, or professional roles paid on a salary basis) cannot be paid for partial weeks worked except during full-week shutdowns, whereas non-exempt employees must be paid for all hours worked.

Communication plays a vital role throughout the furlough process. Employers should provide clear information about the reasons for the furlough, its expected duration, benefit status, and return conditions. This transparency helps maintain trust and reduces employee anxiety during uncertain times.

Furloughs can last anywhere from a few days to six months, after which employers must decide whether furloughed staff will return. When business conditions improve, organizations typically bring back employees based on a process similar to the one used when determining who would be furloughed. 

Companies should notify returning employees in advance through verifiable written communication that specifies return dates and any schedule changes.

For employers, a significant advantage of furloughs over layoffs is the ability to recall trained workers when conditions improve instead of hiring and training new employees. As demonstrated during the Great Recession, this approach allowed companies like Honeywell to recover more quickly once economic conditions stabilized.

Types of furlough leave

Furlough leave exists in several distinct forms, each designed to address specific organizational needs while maintaining employment relationships. Organizations implement these variations based on their financial situation, operational requirements, and long-term workforce strategies.

Unpaid furlough

Unpaid furlough represents a complete cessation of work and compensation for a designated period. This type, sometimes called a “full furlough,” means employees receive no pay for at least a full month continuously. Despite the suspension of salary, furloughed workers maintain their employment status and typically retain access to benefits such as health insurance. Unpaid furloughs commonly occur during shutdown periods when operations temporarily cease. 

Construction companies, for instance, may implement unpaid furloughs during winter months when outdoor work becomes impractical. Similarly, airlines utilize this approach when travel demand decreases significantly, furloughing pilots and flight attendants until passenger volumes recover.

Reduced hours furlough

Reduced hours furlough, alternatively termed “partial furlough,” involves decreasing an employee’s regular work schedule rather than eliminating it entirely. Under this arrangement, employees work and receive payment for fewer hours than normal. For example, an employee who typically works 40 hours weekly might temporarily transition to a 30-hour schedule for a defined period. 

This approach allows companies to maintain operations at reduced capacity while lowering payroll expenses. For non-exempt (hourly) employees, employers may reduce total hours per day or total days per week. However, for exempt employees (salaried), different rules apply—their schedules must be reduced in full-week increments to comply with Fair Labor Standards Act requirements.

Mandatory leave

Mandatory leave constitutes employer-imposed furlough without employee input regarding timing or duration. This involuntary arrangement typically occurs when businesses face unexpected financial challenges requiring immediate cost reduction. Companies implement mandatory furloughs through various methods: requiring employees to take unpaid days between holidays (such as Christmas and New Year’s), scheduling rotating unpaid days throughout the year, or establishing seasonal shutdowns. 

For hourly workers, employers can legally impose furloughs but must proportionally reduce workloads to match decreased hours. Conversely, exempt employees generally cannot perform any work during furlough periods—if they complete even minimal tasks, employers must provide their full salary with limited exceptions.

Voluntary furlough

Voluntary furlough programs allow employees to request unpaid leave while preserving their benefits and position. These employee-initiated arrangements can extend up to 90 calendar days per fiscal year. Eligibility typically includes full-time employees and certain other categories, though employees with H1B visa status and hourly workers often cannot participate. 

Unlike mandatory programs, voluntary furloughs give employees greater control over their work-life balance while helping organizations reduce costs. Throughout voluntary furlough periods, employees retain access to benefits, with employers sometimes covering both employer and employee contributions to prevent coverage interruptions. 

Additionally, employees continue accruing annual and sick leave as if they remained in paid status. Should a voluntary furlough program operate simultaneously with a mandatory one, voluntary days typically count toward mandatory requirements.

Each furlough type offers distinct advantages depending on organizational circumstances and workforce needs. The selection of an appropriate furlough structure requires careful consideration of legal requirements, business objectives, and employee impact.

Furlough vs Layoff: What’s the difference?

The distinction between furloughs and layoffs represents a critical consideration for both employers and employees facing workforce reductions. While both options reduce personnel costs, they differ fundamentally in employment status, duration, benefits, and future expectations.

Furloughs maintain the employer-employee relationship, whereas layoffs permanently terminate this connection. During a furlough period, employees remain officially employed but temporarily cease working and receiving wages. In contrast, laid-off workers experience complete separation from their employer with no guarantee of future reinstatement. This employment status difference carries significant implications for both parties involved in the workforce reduction process.

Benefits continuation marks another fundamental difference between these approaches. Furloughed employees typically retain access to employer-provided benefits such as health insurance, retirement plans, and accrued paid time off. Comparatively, laid-off workers generally lose access to these benefits, though they may qualify for benefit continuation through COBRA at their own expense. Moreover, furloughed employees usually maintain their original hire date and associated seniority when they return, preserving their standing within the organization.

Regarding duration expectations, furloughs are inherently temporary arrangements. Organizations implement them with the explicit intention of recalling workers when conditions improve, normally within a defined timeframe that may range from weeks to several months. Laid-off employees, by contrast, face permanent termination without specific expectations for rehiring, though some may eventually be rehired as new employees if business conditions permit.

Financial implications for affected individuals vary significantly between these options. Both furloughed and laid-off employees may qualify for unemployment benefits, depending on state regulations. 

Nevertheless, furloughed workers generally cannot receive severance packages since their employment relationship continues. Laid-off employees frequently receive severance pay based on factors like length of service and company policy.

From an administrative perspective, each approach presents distinct advantages and challenges for employers:

• Furloughs allow organizations to quickly recall trained workers without incurring recruitment and onboarding expenses, making them ideal for temporary economic downturns
• Layoffs provide more definitive cost-cutting measures when organizations require permanent workforce reductions or structural reorganization

Legal considerations also differ substantially. Furloughs lasting longer than six months may trigger the Worker Adjustment and Retraining Notification (WARN) Act requirements, similar to those applicable in layoff situations. Furthermore, employers must carefully manage furlough implementation to avoid inadvertently creating constructive dismissal claims.

The terminology used in communication matters significantly. When organizations announce furloughs, they typically emphasize the temporary nature and intention to recall workers. Consequently, this messaging helps maintain workforce morale and institutional knowledge during challenging periods. Layoff announcements, alternatively, focus on permanent separation and any available transition assistance.

Ultimately, the choice between furloughs and layoffs depends largely on an organization’s financial situation, future outlook, and retention priorities. Companies anticipating recovery within a reasonable timeframe often prefer furloughs to preserve their talent investment, while those requiring permanent restructuring typically implement layoffs.

Examples of furlough in real life

Real-world implementation of furloughs spans multiple sectors and situations, offering practical insights into how these temporary work cessations function across different contexts.

Government shutdowns

Federal government shutdowns represent one of the most visible applications of furlough procedures. Since 1980, when Attorney General Benjamin Civiletti issued a legal opinion requiring agencies to cease operations during funding gaps, government shutdowns have become increasingly impactful. As of February 2024, ten funding shutdowns have resulted in federal employee furloughs. The 2013 shutdown alone placed approximately 800,000 federal employees on furlough status, costing the economy an estimated INR 2025.13 billion and reducing annualized fourth-quarter GDP growth by at least 0.6 percent. Furthermore, the longest government shutdown in U.S. history occurred from December 22, 2018, until January 25, 2019, lasting 35 days and affecting roughly 350,000 federal employees.

Seasonal business closures

Numerous industries with cyclical operations regularly implement furlough periods during predictable downturns. Companies providing landscaping and lawn care typically furlough their employees when shutting down for winter months. Likewise, manufacturing facilities occasionally furlough workers during temporary material shortages, recalling them once supply chains normalize. 

In September 2018, Boeing began furloughing employees specifically to conserve cash during a labor dispute concerning wages and benefits. These recurring furlough patterns enable businesses to maintain connections with experienced personnel throughout natural business cycles without bearing unnecessary labor costs during predictable slow periods.

COVID-19 furloughs

The pandemic triggered unprecedented furlough implementation globally. Major retailers including Kohl’s and Macy’s furloughed thousands of employees due to pandemic-related sales declines. Disney alone furloughed over 100,000 employees in April 2020, while nearly all executives retained their positions and received bonuses. 

Various governments established support mechanisms for furloughed workers—the United Kingdom offered grants covering 80% of wages up to £2,500 monthly, Denmark subsidized 75% of salaries up to 23,000 kroner monthly, and Sweden covered 90% of wages for employees working reduced hours.

Research indicates that COVID-19 furlough programs yielded substantial benefits beyond merely preserving employment relationships. Danish firms that utilized government furlough subsidies demonstrated higher survival rates by the end of 2020 compared to companies that declined assistance. 

Additionally, these businesses experienced greater employment growth and higher sales in December 2020 than they would have achieved otherwise. Notably, many businesses chose to furlough even low-wage workers when termination would have been less expensive—suggesting employers recognized significant value in maintaining workforce continuity.

The contrasting approaches between countries produced different recovery trajectories. Nations implementing job preservation policies (like Denmark) recovered employment levels more rapidly than those focusing primarily on unemployment benefit subsidies (like the United States). This distinction underscores how furlough structures can significantly influence both organizational resilience and broader economic recovery.

What does it mean to be furloughed as an employee?

Being furloughed places employees in a unique employment limbo—neither fully employed nor terminated. For workers, furlough means a temporary unpaid leave of absence while technically remaining on the company’s roster. Throughout this period, employees receive no compensation yet maintain their official employment status, creating financial challenges alongside job security benefits.

Financial implications represent the most immediate concern for furloughed workers. During furlough leave, employees receive no salary but may qualify for unemployment benefits depending on state regulations. Studies conducted during the COVID-19 pandemic revealed that furloughed workers often face significant income reductions that create financial difficulties for many households. Indeed, research shows that furlough increases the probability that individuals will need to reduce savings compared to pre-furlough levels by 5.6 percentage points.

Alongside financial considerations, furloughed employees typically:

• Retain job status and seniority
• Maintain health insurance and other benefits
• Keep their position within the company hierarchy
• Receive protections under laws like COBRA in the United States
• Expect reinstatement to the same or equivalent position once the furlough ends

Yet, the experience extends beyond practical considerations. Psychological research following the 2008 economic crisis demonstrated that furlough has negative impacts on wellbeing and mental health. The temporary removal from work can trigger feelings of uncertainty, anxiety, and loss of self-identity. Hence, many furloughed workers report experiencing emotional exhaustion that potentially extends into performance deterioration upon returning to work.

Furlough periods vary widely in duration. Employers typically provide a specific return date or establish conditions that must be met before normal duties resume. Nonetheless, unless an employee was on protected leave such as FMLA, employers are not legally required to return workers to their original positions. Thus, while furloughed employees generally expect to return to work eventually, this outcome remains at the employer’s discretion.

Key Takeaways

Understanding furloughs is crucial for navigating temporary work disruptions while maintaining your employment status and benefits.

• Furlough maintains employment status: Unlike layoffs, furloughed employees remain officially employed with benefits intact and expectation of return to work.

• Four main types exist: Unpaid furlough (complete work stoppage), reduced hours, mandatory leave (employer-imposed), and voluntary furlough (employee-requested).

• Financial impact varies by eligibility: Furloughed workers receive no salary but may qualify for unemployment benefits while retaining health insurance and other employer benefits.

• Duration ranges from days to months: Most furloughs are temporary (up to 6 months), after which employers must decide on permanent return or termination.

• Real-world applications span sectors: From government shutdowns affecting 800,000 federal employees to COVID-19 furloughs at major retailers like Disney and Macy’s.

Furloughs serve as strategic workforce management tools that help organizations preserve talent during temporary financial difficulties while providing employees with job security and benefit continuity during uncertain times.

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