In tough economic times, many employers have to make necessary cuts to the payroll. This often includes layoffs, which leaves many employees without jobs. However, some employers may consider alternatives to layoffs, such as furloughs.
What Is a Furlough?
Traditionally, a furlough was considered a leave of absence, usually granted to someone serving in the military or on a missionary assignment. In the employment context, the term has been used to describe an employer's decision to cut costs by reducing employee work hours.
Some employers allow their employees to customize the terms of their furloughs. For example, an employer might require an employee to take four days off per month, but the employee can choose whether to take the days off consecutively or simply work a four-day workweek.
How Is a Furlough Different From a Layoff?
A furlough is usually temporary and allows an employee to continue to work on a regular basis, although at a reduced schedule. Generally, employees on furlough continue to accrue vacation days and sick days, if offered by their employers. They also continue to receive other benefits, such as health insurance.
A layoff, on the other hand, is the removal of an employee from the workforce, without any guarantee of returning to work. Laid off employees typically do not continue to receive benefits, such as vacation days and health insurance. However, they may be offered a severance package with compensation and other benefits for their service. And, they may be able to continue their health coverage at their own cost under the Consolidated Omnibus Budget Reconciliation Act (COBRA). For more information, see COBRA: Continuing Health Insurance After a Job Loss.
Employers may prefer furloughs to layoffs, especially if they expect financial troubles to be temporary. Furloughs allow employers to keep valued employees on payroll, rather than laying them off and then hiring new employees. Employers also avoid paying severance and the higher unemployment insurance premiums that might result when a large group of laid off employees apply for unemployment benefits.
Do Wage and Hour Laws Restrict Furloughs?
Under federal wage and hour laws, employers can typically cut an employee’s hours or pay, as long as the employee still receives at least minimum wage for the hours actually worked. So furloughs don't present wage and hour issues for most employees. However, different rules apply to employees who are “exempt” from overtime and other wage and hour requirements.
To qualify as exempt, the employee must perform a certain type of work and earn a base salary of at least $455 per week. (The Department of Labor has proposed to increase this amount to $970 per week in 2016.) Employers do not have to pay exempt employees overtime, but they generally can’t reduce their weekly pay. (See White Collar Exemptions Under the FLSA for more on exemption eligibility requirements.)
Exempt employees are entitled to their full weekly salaries for any week in which they perform any work. So, if an employer instructs an exempt employee to work four days a week instead of five, the employee is still entitled to the same weekly salary. If the employer cuts the employee’s pay to account for the reduction in hours, it will lose the exemption status for that employee. This can lead to the employer owing large amounts in unpaid overtime, if the employee regularly works more than 40 hours per week.
What If There Is an Employment Contract?
An employer may also be limited in its furlough or layoff decisions by the terms of an employment contract. For example, if you have a written contract promising employment for a certain period of time at a certain salary, your employer may not be able to cut your hours or pay. Employment contracts can also be formed orally—for example, if your employer made certain promises to you in person about not cutting your hours or pay.
In some states, your employer may be bound by the terms of its employee handbook or other written policies or practices. Check your employee handbook or policy manuals to find out if there are any such restrictions on furloughs or reduced hours.
Questions for Your Attorney
- Can I quit my job and apply for unemployment benefits, instead of accepting a furlough?
- Can my employer single only certain employees out for a furlough?
- Does my employment contract limit my employer’s ability to cut my hours or pay?