Furlough
A temporary, involuntary leave of absence where employees remain on the company's payroll but don't work or receive pay, commonly used during economic downturns, government shutdowns, or seasonal slowdowns.
What Is a Furlough?
Key Takeaways
- ✓A furlough is a mandatory, temporary leave where employees stop working and stop getting paid but remain employed by the company.
- ✓Unlike a layoff, the employment relationship doesn't end. Furloughed workers keep their employee status, often retain benefits, and expect to return when conditions improve.
- ✓Furloughs are common in government (during shutdowns and budget disputes), seasonal industries, and private companies facing short-term financial pressure.
- ✓Furloughed employees are typically eligible for unemployment insurance during the leave period, though rules vary by state.
- ✓For exempt employees under the FLSA, furloughs must be structured in full-week increments. Requiring any work during a furlough week risks converting exempt employees to non-exempt status.
A furlough puts employment on pause. The worker stops showing up, stops getting paid, but doesn't lose their job. The relationship is frozen, not severed. Companies use furloughs when they believe the downturn is temporary. Revenue dropped this quarter, but orders should pick up in six months. The government ran out of appropriations, but Congress will pass a spending bill eventually. The ski resort closes in April and reopens in November. In all these cases, the employer wants to keep workers attached to the organization so they can restart quickly when conditions change. The COVID-19 pandemic made furloughs a household term. In April 2020, roughly 11.5 million American workers were on temporary layoff or furlough simultaneously, according to the Bureau of Labor Statistics. Companies across every industry chose furloughs over permanent layoffs because they hoped (correctly in many cases) that recovery was a matter of months, not years. For HR teams, furloughs create a unique set of challenges. You need to manage benefits continuation, handle FLSA compliance for exempt vs. non-exempt employees, process unemployment claims, maintain communication with people who aren't working, and plan for recall. It's harder to administer than a clean layoff in many ways.
Furlough vs Layoff: Key Differences
The two terms are often used interchangeably in casual conversation, but they have different legal and practical implications.
| Factor | Furlough | Layoff |
|---|---|---|
| Employment status | Employee remains on the company's roster | Employment relationship ends |
| Duration | Temporary, with expected recall date | Permanent (or indefinite, with no guaranteed return) |
| Pay | Suspended during furlough period | Ends at separation, final paycheck issued |
| Benefits | Often continue (health insurance, life insurance) | End at separation; COBRA election offered |
| Seniority | Typically preserved during furlough | Lost unless rehired and company policy restores it |
| Unemployment insurance | Eligible in most states during furlough | Eligible after separation |
| Severance | Not typically offered (no separation) | Often offered, especially for mass layoffs |
| Rehire process | Recall to same position | Must reapply, compete with other candidates |
| WARN Act applicability | May apply if furlough exceeds 6 months | Applies if 100+ workers affected at a single site |
Types of Furloughs
Furloughs take different forms depending on the business situation and legal framework.
Zero-hours furlough
The most common type. Employees don't work at all during the furlough period. They're completely off duty. This is the cleanest structure from an FLSA perspective because there's no risk of exempt employees performing incidental work that could jeopardize their exemption status. Government shutdown furloughs typically follow this model.
Reduced-hours furlough
Employees work fewer hours or days per week. For example, a company might move from a 5-day workweek to a 4-day workweek, with Friday as the furlough day. This spreads the pain across the entire workforce rather than eliminating some positions entirely. It works well for non-exempt employees. For exempt employees, reduced-hours furloughs are tricky because the FLSA generally requires full weekly salary for any week in which an exempt employee performs work.
Rolling furlough
Different groups of employees take furlough on a rotating schedule. One department is furloughed this week, another next week. This keeps the organization partially operational at all times while reducing labor costs across the board. It's common in state and local government when budgets are tight but services can't completely stop.
Seasonal furlough
Workers are temporarily separated during the business's off-season with a clear expectation of return. Ski resorts, summer camps, holiday retail operations, and tourism businesses routinely furlough workers for months at a time. These are often built into the employment relationship from the start, with workers understanding the seasonal pattern when they accept the job.
FLSA Compliance During Furloughs
The Fair Labor Standards Act creates different rules for exempt and non-exempt employees during furloughs. Getting this wrong can cost the employer the exemption itself.
Non-exempt (hourly) employees
The rules are straightforward. Non-exempt employees are paid for hours worked. If they don't work during a furlough period, they don't get paid. If they work reduced hours, they're paid for the hours they actually work. There's no requirement to pay for hours not worked. The main risk is allowing furloughed non-exempt employees to check email, answer phone calls, or do any work off the clock. Any time worked must be compensated, even during a furlough.
Exempt (salaried) employees
This is where it gets complicated. The FLSA's salary basis test requires that exempt employees receive their full weekly salary for any week in which they perform any work. An employer can furlough an exempt employee for a full workweek without pay. But if the exempt employee works any portion of a week, even checking one email or attending one meeting, the employer must pay the full weekly salary. Deducting pay for partial-week furloughs violates the salary basis test and can result in loss of the exemption for the entire class of similarly situated employees, not just the one individual.
Practical safeguards
Revoke building access, disable email, and remove VPN access during furlough weeks for exempt employees. Send clear written instructions that no work of any kind is permitted during the furlough period. If a manager contacts a furloughed exempt employee about a work matter, the employer may owe that employee a full week's salary. Train managers explicitly on this rule before the furlough begins.
Managing Employee Benefits During a Furlough
Benefits continuation is one of the main reasons companies choose furloughs over layoffs. But the details require careful planning.
| Benefit Type | Typical Approach | Key Consideration |
|---|---|---|
| Health insurance | Continue coverage, employer pays its share | Employee must still pay their premium share; set up direct payment if payroll deductions aren't possible |
| Life insurance | Usually continues during short furloughs | Check policy terms; some carriers terminate coverage after 30-60 days without premium payment |
| Retirement plans (401k) | No contributions during zero-pay period | Vesting clock typically continues; catch-up provisions may apply on return |
| PTO accrual | Typically pauses during furlough | Clarify in writing whether PTO accrues; some state laws may require it |
| Stock options/RSUs | Vesting may pause or continue per plan terms | Review equity plan documents; some include specific furlough provisions |
| Tuition reimbursement | Usually suspended during furlough | If employee is mid-semester, decide whether to honor commitments already made |
Furlough Best Practices for HR Teams
A well-managed furlough preserves the employment relationship and positions the company for a smooth restart. A poorly managed one creates legal exposure and drives employees to find other jobs.
- Communicate the business rationale honestly. Employees handle bad news better than uncertainty. Tell them why the furlough is happening, how long you expect it to last, and what triggers a recall.
- Put everything in writing. The furlough notice should specify start and end dates (or conditions for recall), impact on pay and benefits, whether the employee may seek temporary work elsewhere, and contact information for questions.
- Disable work access for exempt employees during furlough weeks. Revoke email, VPN, and building access. This protects the FLSA exemption. One work email checked during a furlough week could cost you the full week's salary.
- Help employees file for unemployment insurance. Provide the information they need (employer ID number, dates, reason codes) and don't contest claims. Furloughed employees are legitimately eligible.
- Maintain regular communication. Send weekly or biweekly updates about business conditions and expected recall timelines. Radio silence during a furlough drives people to start job searching.
- Plan the recall process in advance. Decide the order of recall (by seniority, by department, by business need), the notice period you'll give, and the return-to-work procedures including any retraining needed.
- Monitor furlough duration against WARN Act thresholds. A furlough extending beyond 6 months may be treated as an employment loss under the WARN Act, triggering notice and penalty provisions.
Furlough Statistics [2026]
Data that shows how furloughs have shaped the US labor market, particularly since the COVID-19 pandemic.
Government Furloughs: A Special Case
Government furloughs follow different rules than private sector furloughs because of civil service protections and the unique mechanics of budget appropriations.
Shutdown furloughs
When Congress fails to pass appropriations, federal agencies must cease non-essential operations. 'Excepted' employees (those whose work involves protection of life and property) continue working without pay. 'Non-excepted' employees are furloughed. Historically, Congress has retroactively authorized back pay for furloughed federal workers after every shutdown, though this isn't guaranteed.
Administrative furloughs
Separate from shutdowns, agencies may implement furloughs due to budget cuts or sequestration. These are planned in advance and follow the same rules as private sector furloughs regarding notice and implementation. The 2013 sequestration furloughs affected hundreds of thousands of DOD civilian employees, with most required to take one unpaid day per week for up to 11 weeks.
Frequently Asked Questions
Can I get a second job while furloughed?
Do furloughed employees qualify for unemployment benefits?
Can my employer furlough me and then lay me off?
Do I keep my health insurance during a furlough?
How long can a furlough legally last?
Written by Adithyan RK