Furloughs: An Alternative to Layoffs.

During challenging economic times employers utilize various ways to reduce payroll expenses. These include layoffs, pay freezes or pay cuts, hiring freezes and reduced workweeks. However, in this latest economic crisis, employers are using employee furloughs with increasing frequency. 

What is a furlough?

A furlough is a temporary, unpaid period of time away from work. Furloughs are usually involuntary; however, some employers have offered voluntary furlough employee programs to allow employees to volunteer from a period of unpaid time off. The largest employer in California –the state of California – is utilizing furloughs to reduce payroll by requiring employees of government offices to take at least two Fridays off per month without pay. Other employers have required each employee to take an additional week off away from work during the year without pay –similar to an additional week of unpaid vacation.

Advantages of Furloughs.

The advantages of furlough programs may include avoiding severance costs; retaining talented employees (employees the employer would like to retain when business improves); and avoiding or reducing increases in unemployment insurance premiums.  

Implementing the Program

In implementing a furlough program the employer must be mindful of the wage and hour requirements in the state where the employees will be furloughed. Compared to other populous states, Texas is highly unregulated in its state wage and hour laws. For nonexempt employees, furloughs provide few challenges. Nonexempt employees are paid their hourly rate for all hours worked. During periods of furlough the nonexempt employee performs not work and is not paid for those hours that they would have normally worked but for the furlough. Exempt employees, however, must be paid their full salary when they perform any work during the work week. Consequently, furloughing exempt employees requires that the employees be furloughed in full work week intervals and they must be completely relieved of their job duties for the employer to enjoy payroll savings without putting the employees’ exempt status in jeopardy.

Effects of Furloughs

Furloughs that reduce employee hours substantially may have an effect on the employee’s eligibility for benefits. For example, employee hours may drop such that they become part-time employees rather than full-time employees and lose eligibility under certain employer benefit plans. Additionally, where the furlough of an employee reduces his or her hours significantly, it may render the employee partially unemployed and eligible for unemployment benefits.