What happens when you want to reduce business expenses without firing your employees? 

It’s called furlough, a cost-effective and less-permanent solution than layoffs. 

As a modern business practice, especially after the coronavirus pandemic, furlough is a popular method for evaluating what’s best for your employees and your organization’s future. 

But why would a business want to furlough their staff in the first place?

Let’s explore together: 

• What furlough is
• The difference between furlough and layoffs
• Pros and cons 

What Is Furlough?

For instance, a theme park can halt its operations since there’s no point for an employee to work during the off-season. 

Furthermore, you can have government shutdowns due to a lack of funds. 

In a nutshell, furlough is an involuntary leave of absence that happens on a long- or short-term basis, depending on the situation. The goal is to reduce business expenses and retain your current staff. 

Some exceptional circumstances cause the disruptions, such as: 

• Lack of budget or budget approval
• Business reorganization
• Brand revamping 
• Economic downturns
• Lack of work
• Unexpected situations

The main advantage of furlough days over layoffs is that you can call back seasoned workers when things get better rather than hiring and training new employees.

But can you consider furlough in the same way as layoffs?

Follow us further into the article to discover the differences between layoffs and furlough. 

Is Furlough the Same as Layoffs?

The main difference between furlough and layoffs is the different requirements. 

Layoffs are permanent terminations of contracts due to poor performance or other reasons. A laid-off employee has no assurance a company will rehire them after getting fired. 

On the other hand, furlough is temporary leave. 

This means that you can still consider furloughed individuals as employees who’ll resume their jobs when the period ends. 

But there are other differences between the two terms, such as: 

• Healthcare benefits: Furloughed employees continue to receive health insurance in this unpaid leave of absence as long as they meet the provider’s eligibility requirements, while workers who have been laid-off don’t. 
• Paid time off (PTO): Fired workers receive compensation for any remaining PTO days unless the employer’s policy states otherwise. On the other hand, employee furlough helps them keep their vacation, personal, and sick days. 
• Unemployment benefits: When you’re actively seeking a new job, you automatically qualify for unemployment benefits. However, most furloughed employees must meet these requirements, while laid-off employees qualify for unemployment as long as they’ve earned the minimum wage in the past year. 

While furlough may sound nice, it still has some disadvantages.

In the next section, let’s look at furlough’s main pros and cons so that you can make an informed decision. 

Pros & Cons of Furlough

As with all things, furlough has advantages and disadvantages. 

Let’s dive deeper into them! 

Pros

The main advantages of furlough are that it: 

• Reduces costs: Businesses cut costs by putting some employees on furlough when the economy is tough. 
• Retains your skilled workforce: Companies recall the trained staff as and when required. Moreover, you improve your employee retention strategy by keeping your current staff. 
• Provides peace of mind: Employees don’t lose their job and can return to work when the period ends. They also continue to receive health benefits such as life insurance or claim unemployment. 

Cons

The negative aspects of furlough are as follows: 

• Employees can look for new opportunities elsewhere: Sometimes, furloughed workers will search for other positions while waiting for the period to end. 
• It’s tricky to navigate unemployment guidelines: Employees won’t always benefit from unemployment.
• Workforce morale and productivity suffer: Furlough might affect employee engagement, and your team members might need a boost in motivation to keep them going. 

Now Over to You

Is it better to be furloughed or laid off?

That’s for you to answer.

However, furlough is a powerful tool that cuts costs when business is down and helps workers keep their employee benefits, while companies can retain their most skilled staff members. 

Meanwhile, layoffs means you need to hire and train new employees, which is a time-consuming process.

So, you need to decide whether to furlough or fire workers during challenging times.

If you want us to clarify more human resources terms, please check out our HR glossary for more information!

Frequently Asked Questions (FAQs)

Have any questions about furlough we didn’t answer in this article? 

Sneak a peek at our comprehensive FAQ section to find the answers you’re looking for.

Q1. Does a furloughed employee get paid?

An employee is eligible for furlough depending on whether they’re exempt or non-exempt under the Fair Labor Standards Act (FLSA).

A non-exempt employee is entitled to the minimum wage and overtime, so you pay them for the reduced hours worked. 

Meanwhile, a company pays an exempt employee a salary rather than an hourly wage. 

Q2. How long can a company furlough an employee?

The timing of the furlough period varies, depending on the company’s financial needs.

Some companies reduce working hours during the week, while others leave employees on furlough for a few weeks.

In addition, companies that work seasonally may initiate longer furloughs that last for months.

However, the maximum duration of a furlough is one year. 

Q3. What if an employee refuses furlough?

Employees are contractually obligated to resume their previous roles, provided you give them reasonable advance notice. 

In case the employee refuses, here’s what you can do: 

• Persuade your employees through thoughtful corporate gifts or employee benefits; 
• Impose the change, but be wary that it’s a high-risk strategy that could give rise to claims; 
• Consult with employees and find new alternatives to furlough, which might mean new contractual terms.

Q4. Can you fire an employee while on furlough?

Yes, you can fire employees during furlough.

However, you must have a good reason since it might be considered unfair dismissal otherwise. 

Q5. Which employees can you put on furlough?

Furlough covers full-time and part-time employees, even those on flexible, fixed-term, or zero-hours contracts.

When employees have multiple jobs, the reimbursement rules apply to their respective employments, and you treat them separately. 

P.S. To aid your digital recruitment efforts, harvest the power of HR tech with these useful HR tools!