5 Min Read | Published: June 19, 2024
What Does Furlough Mean and How Does It Work?
A furlough, sometimes referred to as involuntary leave, is an unpaid pause in work or a reduction of hours. Learn how furlough works.
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
At-A-Glance
Often implemented by companies that want to save money, furlough refers to temporary and mandatory time off work.
While a layoff means you’re terminated from your job, furlough indicates that you’re taking a temporary break. You may still qualify for benefits, such as health insurance.
If you’ve been furloughed, you may want to take the opportunity to expand your skills. You’ll also want to consider looking for new work and applying for unemployment if you’re eligible.
If you’ve recently found out that you’ve been furloughed by your employer, there’s a good chance you have a lot of questions about what it means for your finances and future.
Put simply, furlough is a temporary leave of absence from work. Typically, they are done with the intention of rehiring employees when business conditions improve.
In this article, we’ll explore what furlough means, how it works, and steps you can take if you’ve been furloughed.
What Does Furlough Mean?
A furlough is a temporary pause in work. It may reduce the hours you work or eliminate them altogether for a time.
Some industries are more susceptible to furloughs than others. For example, if you work at an amusement park or ice cream parlor, you may be furloughed in the winter months or off-season when business is down.
Did you know?
A company may furlough employees for a number of reasons, including the following1:
- To balance the budget
- To manage staff for seasonality
- To help ensure employee health and safety
- Due to a decrease in revenue
- Due to lower demand for a service
The terms of your furlough will depend on if you’re considered an exempt or non-exempt employee under the Fair Labor Standards Act.2
- Non-Exempt Employees (Hourly)
If you’re a non-exempt or hourly employee, an employer can furlough you by reducing your hours.
- Exempt Employees (Salaried)
If you’re an exempt or salaried employee, however, you won’t be able to work but may be able to keep your benefits, like health insurance.
Do Employees Get Paid During Furlough?
Whether an employee gets paid during furlough will depend on whether the employee is non-exempt or exempt.
- Nonexempt employees (hourly) may have their hours reduced, but they must still be paid for the reduced hours that they do work.3
- Exempt employees (salary) typically cannot be paid during furlough. If they should do any work during it, then they must be paid their weekly salary. There are some exceptions to this.4
Furlough vs. Layoff
While furloughs and layoffs are both designed to reduce costs in the short term, there are a few noteworthy differences between them. When you’re furloughed, you take a leave of absence from work but still keep your job.
The term layoff, on the other hand, means that you’re permanently or indefinitely terminated from your position.
While you’ll typically be able to return to your job at the end of a furlough, when you’ve been laid off, you’ll only be able to return if you’re rehired.5
Options for Employees Who Have Been Furloughed
If you do get furloughed, don’t fret. These tips can help you cope with the situation and keep your finances in check.6
- Assess Your Financial Situation
Take a close look at your bills and expenses. Find ways to cut back temporarily. For example, you might decide to cancel your gym membership or get a more affordable phone plan.
- Apply for New Work
You’re free to search for a new job while you’re furloughed. You may look for full-time, part-time, or contract employment. If you’d like to change positions or industries, this may be the perfect time to do so.
- Expand Your Skills
You can develop or strengthen your skills to improve your work performance and put yourself in a better position during your next job hunt. It may be a good idea to take courses, earn certificates, or even mentor others in your field.
- Consider Filing for Unemployment
Most states allow furloughed employees to file for unemployment benefits in certain situations. Check the labor laws in your state to determine if this is an option for you.
Plan Ahead for Furlough: Start an Emergency Fund
In a perfect world, your employer would never furlough you. However, it’s best to be proactive and prepare an emergency fund which can help to minimize financial challenges.
Ideally, you should save at least three to six months of expenses in an emergency fund. You can keep your funds in an easily accessible account. You may want to opt to keep them in a high yield savings account, which would allow you to earn more interest than a traditional savings account. This way, you’ll have an emergency fund to cover your day-to-day expenses should an unexpected situation arise.
Did you know?
Per the Worker Adjustment and Retraining Notification or WARN Act, companies are required to inform you that you’re being furloughed at least 60 days in advance.7
Frequently Asked Questions
Even if you get furloughed, you’re still legally employed. However, your hours may be reduced or it may be an extended period of leave.8
You will typically continue to receive health insurance coverage while you’re furloughed. This is one of the advantages of being furloughed over being laid off.9
In most cases, employee furloughs last less than six months. However, some furloughs may last up to a year.10
The Takeaway
Furlough is a temporary, unpaid pause in work. It may result in reduced hours or eliminate them altogether. If you get furloughed, you can still typically collect health insurance benefits. You may be able to collect unemployment benefits during this time as well.
1,2,3,4,5,6,8 “Furlough: Definition, Pay and How It Differs From a Layoff,” Indeed
7,9,10 “What Is Furlough? (Complete Guide),” MarketWatch
Anna Baluch is a personal finance writer from Cleveland, OH. She enjoys helping people from all walks of life make smart financial decisions. Her work can be seen on Credit Karma, Forbes, LendingTree, Insurify, and many other publications. Connect with Anna on LinkedIn.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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