Furlough

Furlough is a temporary, unpaid leave of absence that is given to employees by their employers due to economic downturns, business interruption or other unpredictable factors. While on furlough, employees have to stop working for an assigned period and are still receiving their salary preserving their other benefits including health insurance, and retirement contributions. Furloughs can be a substitute for layoffs, where the employers can reduce labor costs but retain their workforce. A furlough could last for a few days, several weeks or months. The duration of a furlough varies according to the needs of the organization and the prevailing economic climate.

Example of Furlough

Consider the case of ABC Retail, a company that has to deal with a sharp fall in sales because of an economic recession. In order to offset the financial setbacks without terminating the employees, ABC Retail came up with a furlough program for its employees. Additionally, the furlough entails placing the non-essential workforce on temporary unpaid leave, while the essential staff work their compensated hours at a reduced rate to sustain the basic operations. Furloughed employees are permitted to utilize the accumulated paid time off or apply for unemployment benefits in order to compensate lost wages during the time of furlough. ABC Retail gives employees an accurate picture of what is happening with the furloughs and updates them regularly on the firm's financial situation. With the economic conditions getting better, ABC Retail intends to slowly bring back the laid-off employees to work and resume the regular operation gradually.