Preparing for a Furlough: What Is Furloughing?

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Highlights
In this article

Highlights:

  • Being furloughed means that your employer is requiring you take an unpaid leave of absence.
  • While furloughs are temporary, a layoff means you are permanently separating from your employer.
  • Being furloughed is by no means an ideal situation, but there are steps you can take to prepare.

When companies fall temporarily short on cash and can't afford payroll, they may furlough certain employees until the financial crisis passes. Furloughs can happen at any time; however, they're most frequent during times of widespread economic upset.

Furloughs are typically short-lived, and furloughed employees remain technically employed by the company. However, being furloughed can still be stressful, especially if it happens without much notice.

If you've been recently furloughed or suspect you may face a furlough in the future, here are some important strategies to help you prepare.

What does being furloughed mean?

Furloughs, sometimes called “temporary layoffs,” occur when your employer requires you to take an unpaid leave of absence from work. While it's possible your employer could ask for volunteers to take unpaid leave, furloughs are typically mandatory and unavoidable.

Because furloughs are meant to be temporary, you're able to keep your job throughout the absence. However, it could take your employer up to six months to decide whether they can afford to bring you back. The income lost during that time can be significant, especially if you're juggling debt and trying to pay your bills on time.

Throughout the furlough period, you'll typically receive the same benefits you would have if you were actively employed. For example, your retirement funds and health insurance coverage will likely stay intact. Under certain conditions, you may also be able to collect unemployment or take advantage of other government aid.

Furlough vs. layoff vs. termination

While furloughs are temporary, a layoff means you are permanently separating from your employer. You no longer receive a salary or benefits when you are laid off, but you may be able to receive medical coverage and other benefits during a furlough.

There's also an important distinction between being laid off and being terminated (or fired). Being fired by your employer usually occurs as the result of poor performance or a similar infraction at work. Employees who are terminated are typically unable to apply for unemployment benefits while out of work. Being laid off, on the other hand, often occurs because your employer lacks sufficient funding or does not have enough work available for your position. Employees facing layoffs are more likely to receive severance packages and qualify for unemployment benefits during their time without employment.

How to handle being furloughed

Being furloughed is by no means an ideal situation for most workers. But if you know there's a chance you'll be furloughed in the near future, there are steps you can take to prepare:

  1. 1. Estimate the amount of net income you expect to lose per day. You may want to calculate how much pay you will miss out on for each day of furlough. Start by dividing your annual gross income by the number of days you work each year to determine your daily gross pay. Then multiply the result by your federal income tax rate and subtract that amount from your daily gross pay. By getting a rough estimate of how much pay you are losing per furlough day, you can get a better idea of how much you'll need to save to compensate for the lost income.

  2. 2. Aim to save more and spend less. If your employer gives you advance notice about a furlough, start preparing for it by restricting your budget and putting any leftover income into a designated savings or short-term investment account so you can draw on that money during your furlough.

    If possible, reduce your expenses by the amount of the lost monthly income. It may also help to track your spending during the furlough period so you can get a clear picture of how the income loss affects your budget.

  3. 3. Ask your employer or HR department about their furloughing process. When will your pay be temporarily halted? Will you lose any medical or other benefits? Are you eligible for unemployment? If so, under what circumstances? Be sure to check with your employer on their furloughing policies since each company may do things differently.

  4. 4. Explore options for supplementing your income. Is the furlough period short enough that you can comfortably wait it out? Or will the lost income have a significant negative impact on your financial situation?

    If you answered yes to the latter, you could pick up a part-time job or do some freelance work to regain some of the income you have lost. Even if you aren't in a tight financial spot, you may want to take the time to reflect on your work situation to determine whether the job is worth waiting for or if you're better off seeking employment elsewhere.

  5. 5. Take some time for yourself as well. A furlough period can be extremely stressful. So, don't forget to prioritize your mental health in addition to your finances. Many people use furlough as a time to reevaluate their careers and personal priorities.

    It's also an opportunity to spend time with family and friends and explore your interests outside of work. Taking these and other steps to recover from the stress of a furlough can make it easier to get through your time off until you can return to your employer.
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