Furlough: How It Works And Why It Matters

A furlough is a leave of absence with reduced hours and reduced pay.  It could last a few hours or several months. Technically, you’re employed without pay during a furlough, but you could qualify for unemployment benefits. Furloughs include benefits, but usually don’t include paychecks. When you’re furloughed, you might get a return to work date. (This is more likely if you work for a large company.) But that doesn’t always mean that you’ll return to work. Your employer could decide to extend the date or lay off furloughed employees. 

Since a furlough will leave you with reduced pay and could lead to a permanent layoff, take steps to prepare yourself. You’ll need to manage your finances, your benefits, and your time. Keep reading to learn more about how furlough works and why it matters.

What Is A Furlough?

A furloughed employee has a different status than an employee who’s been laid off or fired. When an employee is laid off or fired, they are no longer employed. When an employee is furloughed, they are employed, but they don’t receive a paycheck (except in rare circumstances when they receive partial paychecks). Employees often keep their benefits when they are furloughed, including their healthcare and 401(k). 

Employers furlough employees for different reasons. It’s common for employers to furlough employees to save money. For instance, in January 2021, Nissan furloughed employees to “optimize business performance and competitiveness.” This was reported in the trade magazine Industry Week. Nissan’s furlough was only for two days, but some furloughs last for several weeks. Harvard Business Review reported that 18 million people were furloughed between March and May of 2020, largely due to the COVID-19 pandemic.

How Long Does A Furlough Last?

Furloughs can last for a few hours to several days, weeks, or months. Nonexempt hourly employees could be furloughed for a few hours, but nonexempt salaried employees usually get furloughed for at least a week at a time. That’s because pay regulations for furloughed employees are different for hourly employees and salaried employees. The U.S. Department of Labor uses the terms exempt employees and non-exempt employees to define which workers are exempt from being paid overtime under the Fair Labor Standards Act.

If a nonexempt salaried employee works any portion of a week, they receive their full salary for the week. An hourly worker will simply not be paid for the few hours or days they do not work. The Department of Labor has a fact sheet that addresses wages for furloughed exempt and nonexempt employees. U.S. Code Title 29 also covers the topic of payment for exempt and nonexempt employees. Be sure to talk to an employment attorney if you think you are owed pay from a furlough period. 

WARN Notices

Employers with at least 100 employees are required to give notice of furlough under the Worker Adjustment and Retraining Notification Act (WARN Act) if 50 or more employees are being furloughed. If a plant is closing or if there’s going to be a mass layoff, the employer must give 60 days notice. If they don’t give notice, the business could be subject to a fine or penalty. For example, the company could be ordered to give employees back pay for each day of the violation. If you work at a large company where a large number of people were furloughed without notice, you can speak to an attorney that specializes in employment law and ask about back pay. 

There are notice exceptions for unexpected events and unforeseeable business circumstances. For example, a business that had a fire or flood could be exempt from giving notice since these are unexpected events. That company wouldn’t be held to the same notice standards as a business that decided to furlough employees because their profits decreased. 

Although a return date is often given to employees who’ve been furloughed, an employer can choose to extend the furlough for up to six months, which is the limit. At that point, employers can choose to lay off employees. The WARN Act defines “employment loss” as a layoff exceeding six months. During a furlough, some employees may go back to work and others may not, depending on the employer's preferences. 

Many states have laws for smaller companies that require them to give notice of furlough to their employees. These are sometimes called mini-WARN laws. The following places have mini-WARN laws:

California, Connecticut, Delaware, Hawaii, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New York, Oregon, the City of Philadelphia, Rhode Island, Tennessee, Vermont, and Wisconsin.

The mini-Warn laws are different for each state. For instance, Iowa requires companies with 25 or more full-time employees to give notice. Kansas, on the other hand, only requires companies in certain industries to give furlough notices. You can find information on your state at your state’s Department of Labor website. Search for “WARN” and you’ll find the notice requirements. 

What Can I Do While Furloughed?

You can look for a job, develop your skills, explore a new career path, examine your finances, and network when you’re furloughed. You can even work a part-time job. Updating your resume during furlough is a smart safety measure. A business may hope to call employees back to work, but they may be unable to for reasons beyond their control. If you have another employment opportunity, you’ll have to decide whether it’s worth waiting to be called back from your furloughed position. If you hate your job or dream of a different life, a furlough might be the break you need to find a job more suitable for you. 

Furlough And Healthcare

Whether or not you’re able to keep your health insurance while you’re furloughed will depend on your healthcare plan and your employer. The option is there if you’re currently covered and your employer continues their part of the coverage. You may still have to pay your share of the plan’s costs. Some employers may offer to cover the health insurance costs as an incentive for employees to stay with the company and wait out the furlough period. Call your human resource department to learn about your options. 

COBRA coverage is also available to certain furloughed employees. COBRA is the Consolidated Omnibus Budget Reconciliation Act, which applies to employers with at least 20 employees. It also applies to state and local government employees but not federal employees or church-related employers. 

Some state laws require employers with less than 20 employees to continue coverage. You can contact your state’s insurance commissioner office to learn more. Simply do a web search for your state name and “insurance commissioner office” to find the official government website. Once you’re on the government website for your state, you can search for COBRA.

If you have COBRA coverage, you’ll stay on the same healthcare plan, but you’ll have to pay the full premium. COBRA allows you to continue coverage for your spouse, former spouse, and children, too. If you’re a furloughed worker, be sure to talk to your employer about the status of your healthcare coverage. 

Furlough And Unemployment

Furloughed employees that aren’t getting paid can qualify for unemployment. To keep your income flowing, consider applying for unemployment when you’re furloughed. If you think there’s no point because of the waiting period usually required for unemployment, keep in mind that you don’t know how long the furlough will last. There’s a chance that your furlough could be extended as well. So, apply for unemployment early. Some state unemployment insurance offices still have a backlog due to record filings during the coronavirus pandemic. 

The unemployment office will ask about your income, including earned paid time off (PTO). Generally, a furloughed employee does not have to use their accrued PTO, but a laid-off employee will get their PTO to clean the slate. PTO will affect unemployment benefits. The unemployment office will also consider changes under the CARES Act when determining the weekly amount to be paid. 

Furloughs And The Coronavirus Pandemic

The coronavirus pandemic caused businesses around the country to panic. The Marriott International Hotel furloughed more than half of its corporate staff at its headquarters. Over 250 hospitals started furloughing employees at the beginning of the pandemic. Even the zoo in Washington, D.C., furloughed more than 75% of its employees. Requests for unemployment benefits reached record highs. 

Up until May 31, 2021, small businesses could apply for loans under the Paycheck Protection Program. This was an incentive to keep people employed. The Small Business Administration administered over 11 million loans, and the average loan was $42,000. The largest percentage of loans went to businesses in the accommodation and foodservice industry (hotels, restaurants) and the construction industry. But many people were still left unemployed. 

The CARES Act became law in 2020 and put safety nets into place. These safety nets included extended unemployment benefits and extra unemployment payments. Some of these benefits are still available for furloughed employees. 

The American Rescue Plan Act of 2021 extended the following programs under the CARES Act until September 4, 2021: The Federal Pandemic Unemployment Compensation (FPUC), which provides an extra $300 of unemployment each week. The Pandemic Unemployment Assistance, which expands unemployment eligibility to self-employed workers. And the Pandemic Emergency Unemployment Compensation, which extends the number of weeks workers are eligible to receive unemployment.

Almost half the states are ending the $300 benefit under FPUC before September. Some states have already ended it. To keep up with the latest news about unemployment and the CARES Act in your state, go to the website for your state’s Department of Labor unemployment office. 

Employees sometimes receive a paycheck for back pay after their furlough period is over. If that happens and you collected unemployment, you’ll have to pay back the amount you were overpaid in unemployment. Government workers are paid retroactively after a furlough. The 2019 Government Employee Fair Treatment Act ensured that furloughed federal government employees would receive their retroactive back pay after a government shutdown. 

Let’s Summarize...

Employees have rights when they are furloughed. But the furlough itself is in the hands of the employer, not the employee. Talk to your employer about the details of your furlough, and ask whether your healthcare coverage will continue. Learn what benefits are available and find out whether you’ll be paid retroactively. Be proactive and file for unemployment to keep a steady source of income or apply for a temporary job. Remember your bills are still going to come due and your employer could always extend the furlough. 

You can use this time productively by organizing your finances, examining your career goals, updating your resume, and spending some time on self-care. The furlough might be in your employer’s hands, but time is now in yours.