How to Furlough Employees: Pay, Notice, and Benefits

To furlough employees legally, place them on temporary unpaid leave using written notices that spell out dates and rules, but first work through four things: whether each worker is exempt or non-exempt under the Fair Labor Standards Act, whether the federal WARN Act’s 60-day notice requirement applies, whether any of the workforce is unionized, and how health insurance and other benefits will be handled during the leave. A furlough keeps employees on the books instead of separating them, which preserves institutional knowledge and avoids rehiring costs, but the legal steps are more detailed than most employers expect.

Get the Pay Classification Right First

The FLSA treats hourly and salaried workers very differently during a furlough, and this is where employers create back-pay liability without realizing it.

Non-exempt (hourly) employees only need to be paid for hours actually worked. Zero hours worked in a week means zero wages owed for that week.¹

Exempt (salaried) employees are the trap. You must pay an exempt employee their full predetermined weekly salary for any week in which they perform any work at all, even one email or one phone call. Salary deductions for partial-day absences generally are not allowed.¹ The practical rule: furlough exempt employees in full-week blocks, and tell them explicitly not to do any work. A three-day furlough with one checked email means you owe the full salary for that week.

If you are considering a permanent salary cut instead of, or alongside, a furlough, an exempt employee’s salary must stay at or above the FLSA threshold to keep the exemption. The Department of Labor is currently enforcing the 2019 rule’s minimum of $684 per week due to ongoing litigation over higher thresholds.² Drop below that floor and the employee becomes non-exempt and entitled to overtime.

Choose Who Gets Furloughed Without Creating a Discrimination Claim

Selection is where furloughs generate lawsuits. Before finalizing a list, compare the percentage of workers in each protected group (race, sex, age, disability) who would be furloughed against their share of the overall workforce. If a group is disproportionately affected, adjust the criteria to reduce the disparity while still meeting the business need.³

Objective criteria hold up in court. Seniority, department-wide reductions, documented productivity data, and specific skill-set needs are all measurable and defensible. Vague managerial discretion with no paper trail is not. Title VII permits bona fide seniority systems and merit-based criteria, provided they are not designed to discriminate.⁴ Keep the records showing how each decision was made. If an employee later argues the furlough was pretextual, those records are your defense.

Check Whether the WARN Act Applies

The federal Worker Adjustment and Retraining Notification Act covers employers with 100 or more full-time workers, or 100 or more employees (including part-timers) who collectively work at least 4,000 hours per week.⁵ Smaller employers are not covered federally, though some states have their own versions with lower thresholds.

A furlough intended as temporary becomes an “employment loss” under WARN once it lasts more than six months, at which point it is treated the same as a permanent layoff for notice purposes.⁶

Two triggering events at a single work site matter:

Plant closing: a shutdown resulting in job losses for 50 or more full-time employees during any 30-day period.
Mass layoff: a reduction affecting at least 50 full-time employees who also represent at least 33 percent of the workforce, or 500 or more full-time employees regardless of percentage.⁷

Read the mass-layoff test carefully. Below 500 employees, both conditions must be met at once. Furloughing 50 people who represent only 20 percent of your workforce does not trigger it.

When WARN applies, affected employees must receive at least 60 calendar days of advance written notice.⁶ An employer that fails to give the required notice is liable for back pay and benefits to each affected worker for every day of the violation, up to 60 days.⁸

Bargain First If Any Workers Are Unionized

You cannot simply announce a furlough to unionized employees and move forward. The National Labor Relations Act requires employers to bargain in good faith over wages, hours, and other conditions of employment.⁹

Write the Furlough Letter

The furlough letter is the anchor document for payroll, HR, and the employee. It should cover:

Exact start and end dates, or if the end date is unknown, the conditions that will trigger a recall.
A clear instruction not to perform any work during the furlough. This is especially important for exempt employees because even incidental work triggers full-week pay.
Whether the employee may draw down accrued vacation or sick time.
What happens to health insurance, life insurance, disability coverage, and retirement contributions.
How and when the employee will be contacted about returning.

Deliver notice in person when possible. Face-to-face meetings let employees ask questions and reduce misunderstandings. When that is not feasible, certified mail with a return receipt gives you a delivery record.

Wages already earned still have to be paid on the normal schedule. The FLSA requires non-exempt employees to receive at least minimum wage and any overtime owed on the regularly scheduled payday for that workweek.¹ Some states impose additional final-pay deadlines that may apply depending on how the furlough is classified, so check state law before defaulting to the regular pay cycle.

Address Health Insurance and COBRA

Health coverage is the benefit furloughed workers ask about first. COBRA applies to group health plans at employers with 20 or more employees and lets workers who lose coverage due to a reduction in hours or job loss continue their group plan for a limited time.¹²

Whether a furlough triggers COBRA depends on your plan’s eligibility rules. If the furlough drops hours below the plan’s threshold, that is a qualifying event. Notify the plan administrator, and the employee then has 60 days to elect continuation coverage. Continuation is expensive: employees may be charged up to 102 percent of the full plan premium, covering both the employer and employee shares plus a 2 percent administrative fee.¹²

Some employers keep paying their share of premiums during short furloughs as a retention measure. Federal law does not require it. Whatever you decide, put it in the furlough letter and notify the insurance carrier promptly to avoid coverage gaps.

Handle Retirement Plans, Life, and Disability

Employee 401(k) contributions stop when paychecks stop because there is no compensation to defer, and employer matches tied to those deferrals pause with them. For employees with outstanding 401(k) loans, a plan may suspend loan repayments during a leave of absence for up to one year; when the employee returns, the missed payments must be made up so the loan does not exceed the original five-year term.¹³ If the furlough runs past a year and payments cannot resume, the outstanding balance may be treated as a taxable distribution.

Whether the furlough interrupts vesting credit depends on how your plan measures service. Plans using the “elapsed time” method generally continue crediting service through a furlough of less than 12 months. Plans that count actual hours worked are stricter: under ERISA, a participant who completes 500 or fewer hours of service during a computation period may be treated as having a one-year break in service.¹⁴ Check the plan document and let affected employees know what applies.

Life insurance and disability coverage often lapse after a set period without active employment. Include the conversion deadlines and carrier contact information in the furlough packet so employees can act before coverage ends.

Give Employees What They Need to File for Unemployment

Furloughed employees are generally eligible for unemployment insurance because they have lost work through no fault of their own. Eligibility rules and benefit amounts are set by state law and vary widely, with maximum weekly benefits running from under $300 in some states to over $1,100 in others. Most states impose a one-week waiting period before benefits begin.

Put basic filing information in the furlough packet. Many employees have never filed a claim. At minimum, include your state workforce agency’s contact information and your federal employer identification number, which employees will need. If the furlough is expected to be short, note that returning to work may require them to report earnings and close the claim.

Implement the Furlough Cleanly

Once notices are delivered, payroll needs to code each affected employee as inactive: pause salary for exempt staff, stop hour tracking for non-exempt. Notify insurance carriers immediately so COBRA notices go out on time.

Collect building badges, keys, laptops, and mobile devices before the last day. For remote workers, disable access to internal servers, email, and cloud platforms. This is not about distrust. It prevents accidental work that could trigger pay obligations for exempt employees, and it protects sensitive data. Keep a log of what was collected from each person to make return easier.

Plan the Recall

When conditions improve, send a formal recall notice using a delivery method that confirms receipt. Include the exact return date, time, reporting location, and a reasonable response window. Five to ten business days lets employees arrange childcare, end an interim job, or handle other logistics. If an employee does not respond or declines the recall, you can generally treat that as a voluntary resignation and convert the furlough into a permanent separation.

Reactivating an employee involves more than a status change. Update benefits portals to resume premium deductions and re-enroll the employee in active health coverage. Verify tax withholdings, direct deposit information, and emergency contacts, especially after a longer furlough. Handle this before the first returning paycheck to avoid delays.

A temporary furlough for lack of work counts as continuing employment for Form I-9 purposes, so you generally do not need to complete a new I-9 when the employee returns. Pull the existing form, inspect it, and update or reverify as needed. If the furlough became a termination and you are now rehiring, you may either complete a new I-9 or rely on the original, as long as the rehire happens within three years of the date the original form was completed.¹⁵

1
U.S. Department of Labor. Fact Sheet #70: Frequently Asked Questions Regarding Furloughs and Other Reductions in Pay and Hours Worked Issues
2
U.S. Department of Labor. Earnings Thresholds for the Executive, Administrative, and Professional Exemptions
3
U.S. Equal Employment Opportunity Commission. Avoiding Discrimination in Layoffs or Reductions in Force (RIF)
4
U.S. Equal Employment Opportunity Commission. Title VII of the Civil Rights Act of 1964
5
U.S. Department of Labor. Worker Adjustment and Retraining Notification Act FAQ
6
eCFR. 20 CFR Part 639 – Worker Adjustment and Retraining Notification
7
Office of the Law Revision Counsel. 29 U.S. Code 2101 – Definitions
8
Office of the Law Revision Counsel. 29 U.S. Code 2104 – Administration and Enforcement
9
National Labor Relations Board. 29 CFR 825.214 – Employee Right to Reinstatement
11
eCFR. 29 CFR 825.216 – Limitations on an Employee’s Right to Reinstatement
12
U.S. Department of Labor. Continuation of Health Coverage (COBRA)
13
Internal Revenue Service. Retirement Plans FAQs Regarding Loans
14
eCFR. 29 CFR 2530.200b-4 – One-Year Break in Service
15
U.S. Citizenship and Immigration Services. 8.0 Rules for Continuing Employment and Other Special Rules