What is Furlough? | Meaning & Definition | Akrivia HCM

What is furlough?

A furlough is a temporary period of leave from work where the employee is not paid. Employers typically use it as a cost-cutting measure during the period of financial difficulty or economic downturn. The employee is still employed but does not work and does not receive a salary for a certain period of time.

Difference between furlough and layoff?

Both furloughs and layoffs are ways of reducing labour costs, but the two concepts have distinct differences.  

A furlough is a temporary suspension of employees from their job duties, usually due to financial constraints. During a furlough, employees are usually paid nothing and are not required to work at all. Employees may be able to use benefits like health insurance during the furlough. It is usually a short-term measure, and once the financial situation improves, employees can return to their jobs.

A layoff is when an employer permanently terminates an employee’s position and is not eligible for any form of benefits. Companies lay off workers when they need to downsize their operations or want to restructure their workforce.

Benefits

a. For employers

• Reduced Labor Costs: Furloughs can help employers save money by reducing labor costs without having to layoff employees, thereby eliminating the expenses associated with recruiting and hiring new employees.

b. For employees

• Increased Job Security: With a furlough, employees are more likely to keep their jobs because the employer is not likely to terminate them while they are on a leave of absence.

Disadvantages

• Reduced Productivity: The reduced levels of productivity associated with furloughs can negatively impact the overall efficiency and quality of the organization.
• Damage to Employee Morale: Furloughs can have a negative effect on the morale and loyalty of the remaining staff. This can lead to decreased commitment to their job, which can negatively affect the company’s overall performance.
• Loss of Talent: There is a risk that the employee may not return, which can lead to a loss of talent and expertise.

Examples

• An economic downturn in business. 
• Shutdown in government 
• When the project the employee is working on is not needed.