Furlough pay: What is it, and who gets it?

Furloughs are never easy — for employees or employers. But they’re sometimes necessary to protect jobs in the long term. Whether you're navigating a short-term business dip or responding to economic uncertainty, it’s important to understand how furlough pay works, and what you need to do to stay compliant.

In this article, we’ll break down everything you need to know about furlough pay as an employer, including how to structure furlough leave, whether or not your employees get paid, and how to keep your payroll records clean and compliant.

What is furlough leave?

Furlough leave is the process of putting an employee on temporary leave, usually to cut costs without permanently losing talent. Unlike a layoff, it’s intended to be short-term.

In practice, furloughs might involve:

• A complete pause in work (unpaid or partially paid)

• Reduced hours or reduced days

• Alternating shifts or rolling furlough schedules

Employers often use furloughs during seasonal slowdowns, unexpected crises (like the COVID-19 pandemic), or times of economic pressure.

Do employees get paid on furlough?

This is the big question, and here’s the short answer: sometimes.

This is because furlough pay depends on several factors, such as:

• Local labor laws

• Employment contracts

• Government support programs

• Company policy

In the US, for example, non-exempt employees (i.e., hourly employees) typically aren’t paid if they don’t work. But exempt (i.e., salaried) employees must be paid their full salary for any week they perform any work — even just checking emails.

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Other countries have their own rules, and these can also differ based on the circumstances. For instance, during the pandemic, employees on furlough in the UK could receive up to 80% of their pay through the government’s Coronavirus Job Retention Scheme.

Ultimately, you must understand local regulations, because the rules for furlough pay can differ wildly between jurisdictions.

How to structure furlough pay

If you need to furlough employees — wherever they are based — here’s what you need to do:

1. Check local labor laws

Some countries require a minimum furlough pay, while others leave it up to the employer. Some offer state compensation programs, while others do not.

However, compliance is non-negotiable, so you need to ensure you are getting support and advice from local experts in your employees’ jurisdictions.

Pro tip: Remote’s local employment experts ensure you meet furlough compliance requirements across the globe.

2. Align your internal policy

Based on what the laws are, decide whether you’re going to offer full, partial, or no pay during furlough leave — and be transparent about it. Your policy should be consistent and documented clearly in employment contracts or furlough letters.

3. Keep meticulous payroll records

This is crucial, as furloughs can trigger audits — especially if government subsidies are involved. Accurate records are essential to track hours worked, furlough periods, and payment amounts.

Common mistakes to avoid

As mentioned, furlough is tricky territory legally, and it can be easy to make mistakes — intentionally or otherwise.

Some common pitfalls include:

• Paying exempt employees inconsistently. In the US, salaried employees must be paid in full if they work any part of the week. This is the case in most countries where employees are paid an annual salary.

• Failing to notify employees in writing. If you don’t have a furlough policy in the employment contract, you need to notify your employees in writing of your intention to furlough them. Clear communication and documented agreements are hugely important for protecting your business.

• Using furloughs as a loophole. Furloughs are temporary. Using them to dodge long-term obligations can land you in hot water with regulators, and leave you wide open to lawsuits in some countries.

• Forgetting cross-border differences. What’s legal in one jurisdiction could be illegal in another, so always ensure that you treat each employee’s case differently.

How can Remote help?

Staying compliant with furlough laws can be tricky, especially if you’ve never had to go through the process before. And if you have employees in multiple jurisdictions, it can get even more precarious.

When you hire through Remote’s EOR service, we ensure you are fully compliant with the relevant laws in every country and state. We work with you to make the furlough process painless, not just for you but for your people, too.

To learn more about how we can remove all your employment and HR management headaches — including payroll, compliance, benefits, and more — speak to one of our friendly experts today.

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