What Does Furlough Mean to an Employee?

In March 2011, the professional staff of the New York Jets was forced to begin a one-week-a-month furlough throughout the offseason, effectively reducing workers' pay by 25 percent. Unpaid furloughs have become an increasingly common response to a budgetary crisis. Gov. Arnold Schwarzenegger imposed a total of 46 unpaid furlough days on more than 200,000 California state workers between February 2009 and June 2010, for a total savings of $3 billion, before requiring a three-day-a-month furlough plan starting in August 2010. Furloughs are an alternative to layoffs, achieving savings without reducing the workforce and allowing the company to rebound more quickly when the economy recovers.

Salary and Benefits

A furlough reduces an employee's salary but differs from a straight salary cut in that time off is provided in exchange for the reduction. Employees can achieve savings on the furlough day to mitigate the pay reduction. For example, the employee may be able to save on gas and commuting costs, lunch money and day care. The employee can work a second job and in some circumstances may be able to claim unemployment. Depending on the company, employers may continue to pay into employees' retirement accounts for days they did not work due to a furlough.

Workload

Furloughs inevitably mean that employees have to do as much work in the same amount of time. If the employer closes for furloughs, the days on either side of a regular furlough day may be busier with customers who would normally access the company on a furlough day. If the employer schedules rolling furloughs --- so the the company never closes --- employees will feel the impact of being short-staffed.

Overtime

Exempt employees will lose their no-overtime status in any week that their pay is reduced due to a furlough, meaning they must be paid overtime for any work performed over 40 hours. If an employer spreads the cost of the furlough across several pay periods, the employee loses his exempt status in every pay period his salary is reduced, resulting in significant overtime liability. Employees should be directed not to perform any work on a furlough, not even checking emails.

Nonexempt employees may also be affected with regard to overtime. Absent a collective bargaining agreement to the contrary, furlough time is not counted as hours worked for the purposes of overtime. Therefore, an employee who has been furloughed during the workweek will not receive overtime pay for working the weekend until he actually works over 40 hours.

Scheduling

Some employers require furloughs to be taken on a specific day when the company is closed for business. Although this option is convenient for the employer, there are some scheduling effects for employees working alternate work schedules. In the interest of fairness, a closure day typically equates to eight hours of unpaid furlough. An employee customarily working four 10-hour days may be required to take two hours of vacation or other leave time, work an additional two hours at another time or switch to a regular schedule of five eight-hour days for that week. Another approach to furloughs is to allocate an amount of time that must be taken by each employee, and allow the employee to decide when to use it. This is more difficult for the employer to administer, but gives employees the flexibility of using the time on an hour-for-hour basis when it is most convenient for them.

If an employee has a second job, this approach to furloughs allows her to schedule the furloughs so the unpaid time can be made up with earnings from the other job. The disadvantage of this approach is that the employer is constantly working with a reduced workforce and may end up with a large, unused vacation liability on the books because employees won't be able to take all their vacation time in addition to their furlough allocation.

References

• South Carolina Budget and Control Board: Office of Human Resources
• The Sacramento Bee; Court Upholds Furloughs, but Not Schwarzenegger's Power to Order Them; David Siders; October 2010
• The New York Times; As N.F.L. Labor Talks Continue, Jets Tell Staff to Expect Furloughs; Judy Battista; Feb. 21, 2011
• Liebert Cassidy Whitmore: Employee Furloughs: Questions and Answers
• New York Post; Ryan Among Hits With Lockout Pay Cuts; Mark Cannizzaro; March 14, 2011