Employee Furloughs: Right for You?
Furloughs place employees in temporary nonduty status, typically without pay. They are used as a cost-cutting measure by employers facing economic challenges, slow periods or financial setbacks. Since furloughs are temporary, the affected employees get to keep their jobs, despite being away from work.
Furloughs are generally considered a better option than layoffs, but because they are governed by specific rules and regulations, they are not simple to implement. Here we share three things to keep in mind when considering a furlough policy.
1. Furloughs are not a permanent or long-term solution to reducing staff.
As stated, furloughs provide temporary leave. Therefore, employers should avoid using them as a strategy for cutting staff on a long-term basis. Some industry experts recommend implementing furloughs only if you plan to return the employee to work within one year.
Usually, furloughs occur over a set period of time, such as:
- Two days off every week or every two weeks.
- One week off every month.
- Two weeks off every two months.
- An indefinite period.
Employers should notify employees how long the furlough will last. If the furlough is for an indefinite period, employers should update furloughed employees periodically on the business's progress and their roles.
2. Know the laws that impact employee furloughs.
The Fair Labor Standards Act: Employers must pay nonexempt employees for all hours worked during their furloughs. Exempt salaried employees typically must receive their full weekly salary if they do any work at all for the week. This means that if exempt salaried employees do any work at all during their furlough week, you cannot dock their salary for any days they are absent during that week.
Equal Employment Opportunity Commission discrimination laws: When offering furloughs, you cannot discriminate based on protected classes — such as race, nationality, age, gender, religion, disability or genetic information.
State wage payment laws: State wage and hour laws may prevent an employer from unilaterally altering the terms of employment, including with regard to paid leave and reduction in salary. For example, some employers allow employees to use their paid time off during furloughs. However, this practice should be in line with applicable state laws.
3. Defer to legal experts before implementing a furlough policy.
Due to the complexity of employee furloughs and the high potential for wage and hour complications, employers are strongly advised to seek legal counsel before instituting a furlough policy.
An employment law attorney can help you:
- Examine whether employment contracts will be affected by a furlough policy.
- Understand the regulations impacting employee furloughs.
- Review the effect of a furlough policy on employee benefits.
- Evaluate the potential impact on morale and retention.
- Determine whether you should implement a furlough policy.
- Set parameters for the furlough policy.
- Draft and maintain the policy so it complies with law.
Let us know if you have further questions.