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Employee Furlough: What You Need to Know

5 minute read

An employee furlough refers to a temporary leave or modification of normal working hours (typically unpaid leave) for a specific amount of time. It’s a leave of absence given to an employee with the promise that they will still have their job once the leave is over.

Employee furloughs are common practice in both public and private-sector organizations. There are numerous reasons why employers implement a furlough employee policy, such as plant shutdowns, seasonal work, and company reorganizations.

Download our sample furlough notice letter here.

Consequently, it’s important for employers and HR experts alike to be well-informed about furlough leave and all it encompasses. Don’t rush into implementing an employee furlough policy without thoroughly going over the pros and cons of furlough leave first.

Why Are Employee Furloughs Gaining Momentum?

Furlough leave is becoming more and more popular among employers, as opposed to layoffs, because they offer a solution to cut costs and save jobs. Also, employee furloughs are regarded as a positive alternative to layoffs.

Employee Furlough

While layoffs generally have a negative connotation for employees, an employee furlough policy is usually better accepted by employees. In fact, industry specialists argue that having an employee furlough policy in place is crucial to maintaining long-term business processes.

What Is the Difference Between Employee Furloughs and Layoffs?

The main difference between employee furloughs and layoffs is the duration. An employee furlough is extremely temporary, meaning it lasts for a specific amount of time, though it is unpaid. Employees on furlough will find their job waiting for them once the furlough period is over.

A layoff, on the other hand, is generally more permanent. Layoffs, despite how we talk about them in everyday conversation, are also meant to be temporary. However, many layoffs do become permanent once the 'recall period' elapses. This is why furloughs are known as a temporary leave of absence, while layoffs are, in most cases, considered permanent.

You can learn about the different types of reductions here.

Another major difference between employee furloughs and layoffs can be seen in employee benefits. When an employee is laid off they are normally entitled to unemployment compensation packages like severance and outplacement services. In contrast, employees on furlough are typically not entitled to such compensations.

What Are the Advantages of Employee Furloughs?

There are various advantages of employee furloughs that employers can enjoy.

  • Avoid layoffs. Temporary layoffs are much less stressful than permanent ones, which makes furloughs even less stressful (if handled properly). Though an employee might not be receiving a paycheck whilst on furlough leave, it still provides them with a sense of security and assurance that they will have a job again in the future.
  • Save compensation costs. Employee furloughs significantly reduce labor costs for employers due to a decrease in paid salaries. Additionally, unlike other reduction in force methods, employee furloughs generally don’t require severance, outplacement, or early retirement benefits.
  • Retain talent pool. Having an employee furlough policy in place allows employers to keep talent within the organization rather than lose it indefinitely. This means less resources are spent hiring and training new staff. Employees, for their part, are also more willing to take a modest financial hit rather than lose their job completely.
  • Tweak business processes. Employee furloughs help employers rebrand and reorganize their internal and external operations to ultimately improve management, generate more revenue, and support a stable workforce.

Employee Furlough

What Are the Disadvantages of Employee Furloughs?

Though there are many advantages of employee furloughs, furlough leave is not without its disadvantages.

  • Job searching. Not all employees are happy about furlough leave. Especially, those who are dependent on a stable paycheck. As a result, employees might start job searching for consistent work – and employers may be unable to retain talent.
  • Lower performance. Since the furloughed employee may return to the same workload, they might feel overloaded. In turn, this can affect the quality of their work performance.
  • Unsatisfied customers. Customers are usually most affected by a shift in company management. They might experience longer waiting times and deal with fewer and less skilled company representatives.
  • Decline in company morale. Employee furloughs can hinder company morale which can be devastating for business processes. Other employees might develop a sense of insecurity about their own future which can affect performance, commitment, and loyalty.

What Are the Furlough Notice Requirements?

If you decide that putting employees on furlough is the best option for you and your employees, then you need to prepare a notification letter. Your furlough notice letter should contain the following:

  • Inside address - Just like with any formal letter, a furlough notice should clearly state the date, employee’s name, and their address. Also, it’s important to follow up with a salutation before you jump into the letter.
  • First paragraph – State the purpose of the letter. It should be short, simple, and straight to the point. Include the employee’s position, department, reason for the furlough, and information about any changes to employee benefits. Also, it’s good practice to assure the employee that this action does not reflect dissatisfaction in job performance.
  • The body – This is the part where you want to go into a bit more detail about furlough leave. Explain what a furlough is, determine the length of the furlough, and communicate employee benefits during this period to employees.
  • Closing paragraph – When signing off in a notice letter, always offer a way for the employee to get in touch. Keep it short and end the letter on a positive note.

You can craft a letter from scratch or use a sample furlough letter to give timely furlough notice to employees.

Download our sample furlough notice letter here.

How Does an Employee Furlough Affect Employee Benefits?

Employee benefits are a major concern for employees on furlough. Frequent questions employees on furlough have is whether or not furloughs affects health plans, 401ks, and paid leave. And if they are entitled to severance pay while on furlough leave, or not.

In most circumstances, employee benefits continue as usual. According to employee furlough policy, employers have an obligation to pay the same premium amounts despite reduced salaries.

However, in accordance with the employee furlough policy, employees are not entitled to severance pay when on furlough leave. This is because they are not separated from service.

Employee Furlough

Some states run work-sharing programs, which act as an unemployment insurance program. This allows employers to reduce an employee’s weekly working hours while unemployment compensation evens out the income. In turn, employees on furlough can access a range of furlough benefits instead.

Tips for a Successful Furlough Notice

Use these tips to successfully announce and implement a furlough:

  • Establish credibility. Have a senior executive or CEO deliver the furlough notice to employees. Make sure they speak from their personal perspective rather than take a corporate stance.
  • Define furlough leave. Clearly define what a furlough is in plain language so that employees can easily understand the term. Do not expect your employees to already be familiar with the term.
  • Provide security. Explain the reasons for the furlough, what it means to employees, how it will impact their employee benefits, and how the decision will affect their future with the company.
  • Clear any doubts. Give employees the chance to ask questions and express their concerns about furlough leave openly.

When implemented successfully by following a well-defined road map, employee furloughs can be extremely powerful business tools.

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