Originally published 1/10/2024; updated 8/1/2025
Every business encounters challenges, and financial hurdles often force employers to make tough decisions. Balancing the need to cut costs while retaining valuable team members can feel like walking a tightrope. Many employers strive to find solutions that reduce expenses without losing the talent and skills their teams bring to the table. This is where creative strategies, such as furloughs, come into play.
Furloughs offer a temporary way to address financial strain, allowing businesses to reduce payroll costs without resorting to permanent layoffs. But how exactly do furloughs work, and how do they compare to layoffs? Understanding these options and their potential impact on both businesses and employees is crucial for making informed decisions during challenging times. Let’s take a closer look at how furloughs can serve as a strategic alternative.
What Is a Furlough?
A furlough is a temporary, unpaid leave of absence from work. The key word here is temporary; employees on furlough aren’t terminated. Instead, they’re simply sidelined for a period, with the expectation that they’ll return to their roles when conditions improve. Common reasons for furloughs include seasonal fluctuations, temporary declines in demand, or economic pressures.
For businesses, furloughs help manage costs while maintaining relationships with trusted employees. Employers pause paychecks to redirect resources to essential priorities, such as covering immediate expenses or navigating a financial rough patch, without severing ties with their workforce.
From the employee’s perspective, furloughs can come with challenges, but they often mean retaining benefits and assurance of future work once the business rebounds.
Furloughs vs. Layoffs
Although often confused, furloughs and layoffs are distinct in crucial ways. When an employee is laid off, their employment is terminated, and there’s no expectation they’ll be rehired. Layoffs typically stem from long-term issues, like sustained reductions in demand or company restructuring.
Importantly, laid-off employees are usually eligible for unemployment benefits because their termination wasn’t performance-related. Meanwhile, furloughs are designed to be short-term and keep the door open for employees to return, reducing the need to recruit and train new hires later on.
Why Businesses Turn to Furloughs
Furloughs might sound like bad news, but they often have benefits for both employers and employees. For businesses, this approach can preserve talent, keep trained staff engaged, and alleviate immediate financial pressure. Employers can maintain a skilled workforce without committing to permanent employment costs during downtime.
Additionally, furloughs signal to staff that their roles are valued and that the business intends to recover, something layoffs often fail to communicate.
Advantages of Furloughs
For companies considering financial adjustments, furloughs provide several advantages:
- Employee Retention: Temporarily sidelining employees allows businesses to keep their experienced team members for future needs.
- Cost Management: By holding off on paychecks, businesses can weather financial challenges without losing all their talent.
- Avoiding Rehiring Costs: Since employees on furlough are expected to return, businesses bypass the expense and effort of hiring and training replacements.
From a business perspective, furloughs act as a strategic pause, easing cash flow issues while preserving operational capacity for when business improves.
Disadvantages of Furloughs
However, furloughs aren’t without their downsides. Employees may face uncertainty or financial strain during their unpaid leave, and some could seek other opportunities, resulting in talent loss. For businesses, the cost savings may only provide a short-term fix, especially if economic challenges persist longer than expected.
Reopening after a furlough can also bring its own set of challenges, from resuming operations to restoring team morale. Employees returning from furlough might feel uneasy about job security and the company’s long-term health.
Making the Right Decision for Your Business
Deciding whether to implement furloughs or pursue alternatives requires careful planning. Furloughs can offer a middle ground between cutting costs and retaining employees, but they must be approached strategically. Consider how your decision will impact both your bottom line and your team’s morale.
Done thoughtfully, a furlough can serve as a tool for navigating temporary financial difficulties while preserving the heart of your business: your people. By weighing the pros and cons and engaging your employees in open communication, you'll make well-informed choices that set your business on a path to recovery and future success. Need some guidance? Connect with the TPC Vision team to learn more.
