What is a furlough and what impact can it have on your employment?

The nationwide lockdown following Covid-19 caused economic activity to slow down and forced non-essential businesses to remain shut for a significant period. This made it difficult for employers to continue paying salaries to staff members without earning any revenue. Consequently, many started adopting the approach to furlough employees till the situation got better. This caused panic amongst the masses as most equated furlough to a layoff, thus stressing over the uncertainty of getting their jobs back. However, the truth is that the two are completely different. In this article, we will try to explain what is furlough and why is it sometimes unavoidable.

What is furlough?

The simplest way to understand this is to equate furlough with an unpaid leave – one that you did not ask for but has been forcefully granted to you by the employer. It is different from a layoff because employees are not terminated, but expected to resume their duties after a certain period. Also, unlike someone who has been laid off, furloughed employees are entitled to their benefits even during the mandatory leave.

When do employers use furlough?

Employers furlough their staff members for one of the following reasons:

Budgetary constraints

When they do not have enough financial resources to pay salaries to everyone.

Overstaffing

There are more employees in the organization than the number of tasks needed to be performed. Consequently, there is no point in calling all of them at the same time.

Alternative to downsizing

Generally, employers dislike laying off their staff members. Therefore, in circumstances like the ones mentioned above (such as overstaffing and financial constraints), furlough is the best alternative to terminating employees so that all of them can take turns to earn and remain employed.

Duration

The duration of a furlough is usually defined and employees are given an exact date at which they are supposed to rejoin. Ideally, furloughs are supposed to be short-term arrangements. However, there is no binding on this requirement. The recent lockdown is one example of when employees were furloughed for a long and indefinite period as no one was sure when the situation would get back to normal.

The no work rule

The No Work Rule restricts the employer from taking any work-related help from the furloughed employee. The reason being that the law recognizes the fact that an employee is not being paid during the furlough, and hence should not work during this time. In fact, according to this rule, assisting with even minor tasks such as responding to an email would require the employer to pay the employee. In case the employee is hired on a monthly payroll, one small task may make him/her liable to receive the salary equivalent to one whole week.

Eligibility to receive unemployment benefits

Since furloughed employees are not being paid, they should technically be eligible to receive unemployment benefits. However, the policy may vary according to state laws.

Advantages and disadvantages of furlough

Advantages:

Understandably, furlough is not an ideal situation for either employees or employers. However, if we look at the positive side, there are certain benefits to these unwanted, unpaid, forced leaves.

Means to retain employees

Furloughs are better as compared to lay-offs because when the business gets operational again, it has trained employees ready to resume work. This eliminates the effort and resources that would otherwise be required to be put into the recruitment process.

Prevents lay-offs

It is the best alternative to terminating employees, and hence prevents a large number of people from going out of work.

Increases efficiency

The truth is that no industry remains busy throughout the year. There are times when the workload is high and similar instances when the magnitude of required input is not much. Furloughing employees means organizations won’t have to pay employees for periods when the work can be completed by fewer staff members. This would help increase the profitability and efficiency of the business.

Disadvantages:

Risk of losing employees

No one likes to remain unemployed (unpaid). Therefore, employees are likely to search for other opportunities during the period of furlough. The ones who have high chances of being offered jobs elsewhere are your best and most talented human resources. Therefore, it won’t be wrong to say that furlough comes at a cost of losing your best employees.

Time wasted in re-settling

Just like students take time to adjust to the new routine after vacations, employees returning from a furlough also need a few days to re-settle in the work environment. This period is marked by low performance and hence accounts for wastage of time. Also, if certain staff members need to be rotated to different departments due to the resignation of some employees following the furlough, additional time will be required for training them to perform the new role.

Decrease in employee morale

An unexpected and mandatory requirement to take unpaid time off from work may confuse the minds of employees and significantly reduce their morale. This may also result in rumors about the firm, thus leading employees to worry about job security. Consequently, productivity levels would decrease causing employees to look for other means of employment.

Having gained a detailed understanding of what is a furlough, we hope that you do not panic the next time your employer uses this term. Rather, try to understand the root cause for this decision and then adopt the way forward; whether it be continuing at your existing firm or looking for alternative employment opportunities.