When the pandemic hit, many businesses needed to reduce their payroll expenses to cope with major losses.
Businesses large and small resorted to employee furloughs as a temporary short-term solution, with hopes they could bring employees back when things got better.
Unfortunately for some employers, the coronavirus (and its consequences) lasted much longer than expected. If this sounds like you, you might be wondering: How long can I furlough an employee? At what point should I consider long-term solutions like layoffs?
Keep reading to find out why you may need to use an employee furlough, how long you can furlough an employee, and what benefits your employees can still access while they are furloughed.
The Basics of an Employee Furlough
An employee furlough is a mandatory unpaid leave of absence initiated by a company. Businesses use it as a temporary cost savings measure during difficult times, such as the pandemic or an economic recession.
You get to decide the terms of the furlough, such as how many days a week the employee is furloughed and how long the furlough lasts. Furloughs can be a reduction in work hours from full-time to part-time schedules, and even extend to full leaves of absence.
Furloughed employees are still considered employed.
Although furloughed workers do not receive their salary during the shutdown, they usually retain access to their health insurance and employee benefits unless otherwise stated in company policy.
Your furloughed employees have the right to search for new employment while on leave, which means one of the major downsides of furloughing employees is the chance that you’ll lose some good performers.
The No Work Rule: Exempt vs. Non-Exempt Employees
According to the Fair Labor Standards Act (FLSA), employees aren’t allowed to work without being compensated for services rendered. This means furloughed employees are not expected and should not be allowed to perform any work or work-based assignments, which is known as the No Work Rule. If a furloughed employee works for even a few minutes, they must be paid — at their regular pay rate.
Non-exempt employees typically work for hourly wages and are eligible for overtime pay if they work more than 40 hours in a workweek. If a non-exempt employee works during a furlough, they must be paid for the time worked.
Exempt employees are full-time employees who are usually paid a salary instead of an hourly wage. If a salaried employee works during a furlough period, they must be paid their full weekly, bi-weekly or monthly salary, even if all they did was respond to a few emails. In short, an employee's pay and/or an employee's salary must be paid for any time they work.
To avoid breaking the No Work Rule, you should outline work restrictions in your furlough letter. Many businesses also take back company devices and suspend access to work email and other accounts until the furlough ends.
Employee Furlough vs. Layoffs
A layoff refers to the temporary suspension or permanent termination of an employee, or a group of employees for business reasons (i.e. reasons other than performance).
The terms layoff and furlough are different in the sense that a layoff almost always means permanent termination, while a furlough usually means a leave of absence (if your business can make a recovery). Businesses often use furloughs when they can’t afford to pay their whole staff, but they don’t want to implement a mass layoff. Furloughs can affect non-essential workers, and even essential workers, as well as part-time or full-time employees — depending on how your business is structured.
And while layoffs can happen for the same reason as furloughs —when a business needs to reduce expenses due to an unforeseen event (i.e. coronavirus pandemic)—layoffs usually mean a company is pretty certain they won’t be able to pay a full staff any time in the foreseeable future. For example, at the height of the 2020 pandemic and lockdown orders, Airbnb’s valuation took a sharp decline. As a result, the company laid off 1,900 employees and hundreds of contract workers.
Layoffs can also be the result of a change in the workforce structure due to automation or outsourcing. But remember, unlike furloughed workers, employees who are laid off are no longer employed and no longer have access to health insurance or other employment-based benefits.
How Long Can a Company Furlough an Employee?
Employers decide on the terms of an employee furlough. A furlough can be as short as one week or as long as several months. The period of time depends on the company’s financial situation.
However, employee furloughs are intended as temporary solutions. When you implement an employee furlough, you are suggesting that your full- and part-time employees will return to work once business circumstances have improved enough.
There is no maximum limit on how long you can keep an employee furloughed. But extensive furloughs can reflect poorly on your organization and reduce morale.
As a general rule, employers will implement an employee furlough if they expect employees to return to work within a 12-month period or less.
Furlough Notice and Furlough Recall
When you implement an employee furlough, there are notice requirements you need to follow, such as distributing an advance Notice of Furlough letter to the affected employees.
At a minimum, your written notice should include:
- Furlough start date
- Terms of furlough (reduced hours or cease work)
- Anticipated furlough end date/duration
- How employees can access benefits
- How to use paid time off (PTO) during the furlough
- Back pay intentions (if applicable)
If you include an anticipated return to work date in your letter, you retain the right to make changes to your furlough policy.
As usual, check local employment law before implementing a furlough.
Once you’re ready to bring back your furloughed employees, you’ll send a Furlough Recall Letter to notify them.
The recall letter should include an offer of employment, return to work date, and terms of employment. If you have made changes to employment terms or benefits, be sure to include that in your recall letter.
Unemployment Benefits for Furloughed Employees
Unemployment benefits and eligibility rules are determined by state law.
Most furloughed employees can claim full or partial unemployment benefits for employment loss while they are on leave. Some states institute a waiting period before allowing furloughed employees to claim benefits, and some require employees to actively search for a new job.
If you provide back pay after rehiring your furloughed employees, they’ll most likely be required to pay back any unemployment insurance benefits they received.
An employee furlough isn’t the most ideal step for a business to take, but sometimes it’s necessary, and one that will ensure your employees can still access healthcare and other benefits.