Kitchen Table Economics

Employee Furlough Explained

As the COVID-19 outbreak continues to disrupt businesses, many owners are left with tough decisions in regards to their employees. While some small businesses are forced to layoff workers, others are choosing to furlough employees.

But what does furlough mean?

Simply put, an employee furlough occurs when a business requires their workers to take an unpaid leave of absence. These workers are still technically employed, but they don’t work or won’t get paid while the leave of absence is in place. Depending on the business they work for, this could mean workers are without pay for one week, a month or longer.

In contrast, when an employee is laid off, it is permanent. In the case of furloughed workers, this is a temporary cut and they are expected to return to work as soon as the business is operating again.
Why do businesses decide to furlough employees instead of laying them off?

While there are many pros and cons to this option, owners make this decision based on the state of their business when a crisis hits. Many mom and pop shops have extremely small profit margins so when the economy takes a turn for the worse, these margins become even smaller.In order to stay afloat, companies have to find ways to cut costs–especially labor costs.

By furloughing employees, shops and restaurants are making a quick decision to save money in order to survive difficult times. When the economy improves and businesses re-open, owners can quickly bring staff back on board without having to re-hire or recruit new employees.

Employee furlough is a temporary solution that many businesses turn to during difficult times. While this may leave employees without pay for an undisclosed amount of time, they know that as soon as the doors are opened, they have their same job.