Furlough

What is furlough?

Furlough is a temporary leave of absence from work, usually due to financial challenges faced by the employer. During furlough, employees remain employed, often retain benefits, and are expected to return to their roles once conditions improve.

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The CARES Act, a law passed by the US Congress in response to the COVID-19 pandemic, allows employers to temporarily furlough their employees and receive reimbursement for some of their employees’ wages through a program called the Pandemic Unemployment Assistance (PUA) program.

Is there any pay provided to the employees during a furlough period?

The answer to this question can vary depending on the employer’s policy and the laws of the jurisdiction. Some employers may continue to pay employees a reduced salary or wages during a furlough, while others may not pay them at all. HBR’s labor research shows that organizations using furloughs rather than permanent layoffs during downturns recover operational capacity 30% faster when business conditions improve, due to retained institutional knowledge.

It’s always good to check with the employer or consult the labor laws in your area to know more about the pay during a furlough period.

What is the typical duration of a furlough for an employee?

The typical duration of a furlough for an employee can vary depending on the employer’s policy and the laws of the jurisdiction. Some furloughs may last a few days or weeks, while others may last several months.

The duration of a furlough can also depend on the reasons for the furlough, such as a seasonal business may furlough employees only for the off-season period, whereas an employer facing financial difficulties may furlough employees for an indefinite period.

It’s always advisable to check with the employer or consult the labor laws in your area to know more about the typical duration of a furlough for an employee.

Difference between furlough and layoff

While furloughs and layoffs reduce workforce costs, they differ in intent and impact. A furlough occurs when employees are placed on a temporary, unpaid leave with the expectation of returning to work.

On the other hand, a layoff is often permanent or indefinite, with no guarantee of rehiring.

Key differences:

Basis	Furlough	Layoff
Nature	Temporary work suspension	Mergers, bankruptcies, and company downsizing
Employment Status	The employee remains on the payroll	Employment ends, and benefits may cease
Benefits Retention	Usually retained (e.g., healthcare, insurance)	Typically lost after a notice period
Rehire Expectation	High (automatic return when conditions improve)	Not guaranteed
Trigger	Short-term economic conditions or slowdowns	Organizational restructuring or cost-cutting
Common During	Seasonal downtimes, pandemics, budget constraints	Seasonal downtimes, pandemics, and budget constraints

How does furlough in the workplace take place?

A furlough occurs when a company temporarily reduces or suspends work due to financial strain, reduced demand, or other economic conditions. It’s often a strategic move to cut labor costs without losing valuable talent.

Below are some points to help you understand how furlough typically takes place in the workplace:

Assessment of business conditions – Management reviews operational needs, financial projections, and economic conditions to determine if furloughs are necessary.
Defining furlough terms – Companies outline who will be affected, for how long, and what work (if any) is allowed during the furlough period.
Legal and HR review – Employers ensure compliance with labor laws, especially regarding exempt vs non-exempt employees, unemployment eligibility, and benefits continuation.
Communication with employees – A clear written notice is sent to every furloughed employee, explaining the start date, expected duration, benefits status, and point of contact.
Documentation and formalities – HR logs all furlough notices, updates payroll systems, and coordinates with benefits providers to see if coverage is to continue during furlough.
Return-to-work plan – As conditions improve, the employer re-engages furloughed employees, often with a return-to-work letter and reintegration support.

Furloughs can be complete (no hours) or partial (reduced hours or days). Transparency and empathy during this process are crucial to maintain trust and morale. SHRM’s employee relations guidance provides detailed frameworks for implementing furloughs legally, including WARN Act notice requirements and benefit continuation obligations.

Furlough planning is a critical HR skill for workforce resilience. A structured hiring plan and strong talent acquisition practices help organizations attract and retain top talent.

Frequently asked questions

A furlough is a mandatory, temporary leave of absence where employees are required to stop working for a defined period, typically without pay (though some employers maintain benefits). Unlike layoffs, furloughed employees remain employed and retain their employment status, benefits eligibility (sometimes), and expectation of return. Furloughs are used to reduce costs during financial difficulties without permanently losing staff.

A furlough is temporary : the employee retains their job and employment relationship, with an expectation of return when conditions improve. A layoff is a permanent or indefinite termination of the employment relationship. Furloughed employees typically cannot work during the furlough period; laid-off employees are immediately free to seek other employment. Tax and benefit treatment differs significantly between the two.

In most US states, yes : furloughed employees are typically eligible for unemployment benefits because they are experiencing reduced or eliminated earnings through no fault of their own. States have different rules about how many hours reductions qualify. During the COVID-19 pandemic, eligibility was expanded significantly. Employees should file claims as soon as furlough begins rather than waiting for return.

Obligations vary by jurisdiction and furlough design. Common obligations include: WARN Act advance notice (60 days for qualifying employers with 100+ employees), continued health insurance coverage (depending on plan terms and COBRA rules), maintaining retirement plan accruals depending on plan documents, and communicating clear return-to-work expectations. Employers must ensure furlough terms don’t inadvertently create constructive dismissal.

There is no universal legal limit, but practical constraints apply. Most furloughs are planned for weeks to months. Extended furloughs (6+ months) risk employees finding other work permanently and not returning. Benefit continuation obligations create ongoing costs. Many organizations convert furloughs to permanent layoffs if business conditions don’t recover within 3-6 months. Some government furloughs have lasted months but involve unique employment rules.

Health insurance: depends on plan terms : many employers continue coverage during furlough. Retirement benefits: most plans continue to credit service but contributions cease. Paid leave: furloughed employees typically cannot use PTO during the furlough (though some employers allow it). COBRA: if coverage is terminated, employees must be offered COBRA continuation. Equity vesting: typically pauses during unpaid leave unless plan documents specify otherwise.