A furlough is a temporary, mandatory unpaid leave or reduction in hours that an employer uses to cut costs while keeping employees on the payroll. Unlike a layoff, furloughed employees remain employed and are expected to return, and they often keep some benefits.
Key takeaways
- Furloughs can be full-time unpaid leave or reduced schedules, such as one unpaid day a week.
- Exempt employees must be furloughed in full workweeks, or their salary reduced prospectively, to keep exempt status.
- Many states provide partial or full unemployment benefits during furloughs.
- Long furloughs or deep hour cuts can trigger WARN Act notice requirements.
How furlough works
Non-exempt employees are paid only for hours worked, so furloughs are straightforward: fewer scheduled hours, less pay. Exempt employees are more complicated. Under the FLSA, deducting pay for a partial week can destroy the salary basis of the exemption. Employers can avoid that by furloughing exempt employees for full workweeks, or by reducing their salary going forward for business reasons, as long as it stays above the $684 weekly minimum (DOL Fact Sheet 70, Furloughs and other pay reductions).
Benefits continuation depends on plan terms. Many employers keep health coverage during short furloughs and collect the employee's share later. Unemployment is often available for full furloughs, and many states offer partial benefits or work-sharing programs for reduced hours.
WARN counts a layoff longer than six months, or a cut of more than 50% in hours for each month of a six-month period, as an employment loss. Large or long furloughs can therefore require 60 days' notice.
Furlough example
A 250-person event services company loses a major contract. Instead of laying off 40 people, it furloughs all non-exempt staff one day a week for 10 weeks and furloughs exempt staff for two full weeks over the same period. Health coverage continues, with employee premiums deducted from later paychecks by agreement. Employees in states with work-sharing programs file for partial unemployment. Over those 10 weeks, the company cuts payroll by about 20% without losing trained staff.
Why furlough matters for employers
Furloughs preserve relationships and skills that layoffs destroy. When business recovers, rehiring and retraining are slow and expensive, and job openings still stood at 7.1 million in August 2026 (BLS Job Openings and Labor Turnover Survey, August 2026). Keeping trained people attached through a short downturn can be cheaper than replacing them.
The trade-off is morale and clarity. Explain the reason, the length, what happens to benefits, and how employees can apply for unemployment. Use our organizational change announcement as a starting point.
Common furlough mistakes to avoid
Partial-week furloughs for exempt staff
Docking a partial week can cost the exemption. Use full weeks or prospective salary cuts.
Letting furloughed employees work
Even checking email can be compensable time for non-exempt staff.
Forgetting WARN
Long or deep hour reductions can be employment losses under WARN.
Not addressing benefits
Tell employees exactly how premiums and coverage work during the furlough.
Furlough: questions people also ask
What is the difference between a furlough and a layoff?
Do furloughed employees get paid?
Can furloughed employees collect unemployment?
Do furloughed employees keep health insurance?
Can exempt employees be furloughed?
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HRTally glossary entries are written by people who have run US payroll, benefits, and HR operations, then checked line by line against primary sources such as the IRS, Department of Labor, EEOC, and Bureau of Labor Statistics. Dollar limits and rates are for 2026 unless stated. We review every entry at least twice a year and whenever a rule changes. This page explains general rules and isn't legal or tax advice; state law can differ. Read our editorial standards.
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<blockquote>A furlough is a temporary, mandatory unpaid leave or reduction in hours that an employer uses to cut costs while keeping employees on the payroll. Unlike a layoff, furloughed employees remain employed and are expected to return, and they often keep some benefits.</blockquote><p>Source: <a href="https://www.hrtally.com/hr-glossary/furlough/">HRTally HR Glossary, Furlough</a></p>
Written by the HRTally Research Team
Our guides are written and reviewed by people with hands-on US HR, payroll, and HR technology experience. Legal and tax facts are checked against primary sources, such as the Department of Labor, IRS, EEOC, and USCIS, and linked at the end of each guide. Vendors never review or pay for our editorial content.