Hundreds of thousands of workers have recently been furloughed—here’s exactly what that means

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This week, dozens of retailers, including Macy’s, Kohl’s, J.C. Penney and Gap, among many others, announced they would furlough the majority of their staff, resulting in hundreds of thousands of Americans going without pay during the coronavirus pandemic.

These retailers are the latest to issue sweeping furloughs for the majority of their workforce, following similar moves made in the restaurant and hospitality industries that have been hard hit by pandemic closures

As more states mandate the closures of non-essential businesses, it’s likely more companies and industries will follow suit.

For those who may be furloughed for the first time, or worried they’ll be furloughed due to the pandemic, here’s what workers should know.

What does it mean to be furloughed?

When a person is furloughed, they can’t work and can’t receive pay. It’s essentially a temporary, unpaid leave of absence.

It’s not a layoff, however.

A furloughed worker remains an employee with the company and can return to their job when the company decides to reopen. Companies can also choose to continue providing health insurance and benefits coverage to furloughed workers for a certain amount of time, though it’s not required or guaranteed.

For example, Macy’s workers furloughed this week will keep their existing medical, dental, vision and other insurance benefits through May. Workers also retain their employer-sponsored 401(k) accounts, though employees won’t be able to contribute to them while they are not being paid.

How long does a furlough last?

It depends.

Some companies may regularly furlough their workforce due to the availability of seasonal work, says Michele Evermore, senior researcher and policy analyst at National Employment Law Project. Steelworkers, for example, may be furloughed for a few months every year when construction needs are down.

Katherine Williams, 40, of Waterford, Conn., was furloughed from her job as a fulfillment lead at Macy’s this week. Previously, she spent several years working as a school bus driver. She would often be furloughed during the summer when school wasn’t in session, but she could come to expect re-employment every August.

With her current situation, however, “nobody really knows what’s going to happen,” she tells CNBC Make It.

Why do companies furlough their employees?

Companies impacted by the pandemic are resorting to many different measures to cut costs, including by reducing work hours, mandating pay cuts and laying off employees. Furloughs are one way to quickly cut operating costs now and minimize re-hiring costs later.

“A furlough is a way for companies to lessen their spend on a temporary basis without permanently reducing the size of their staff,” says Michelle Armer, chief people officer of the job site CareerBuilder.

Because companies retain their workforce through a furlough, they can resume operations much faster after it’s over. They won’t have to spend time and money hiring new workers or re-hiring workers they previously laid off.

Can a furlough become a layoff?

Yes, a company that has furloughed its workforce can later decide to permanently lay off employees.

“It’s entirely possible; I’m expecting quite a bit of that to start happening,” Evermore says, given the economic upheaval caused by the global pandemic. “Companies that temporarily ramp down now may later on realize they have to shutter their doors if this goes on long enough.”

For her part, Williams is worried her job might not make it past the furlough period. She says the Macy’s store where she works was identified as one of the 125 locations the department chain plans to close in the next three years.

“Knowing if I’m going to have a job after two months, or however long this lasts, is a big question,” Williams says. “It’s scary to know Macy’s may not be able to bounce back from this.”

Can you file for unemployment if you’re furloughed?

Yes. Workers furloughed due to the pandemic are eligible to receive unemployment insurance, which has dramatically expanded as part of the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act.

“It doesn’t matter whether you’ve been furloughed or laid off, you’ll be eligible for unemployment under the COVID-19 stimulus package,” Evermore says. She adds workers still receiving employer-sponsored benefits during a furlough are still eligible for unemployment insurance.

Under the $2 trillion CARES Act, unemployed workers (including those who’ve been furloughed) are eligible to receive their state-administered benefit, based on previous earnings, for up to 39 weeks. They’ll also get an additional $600 per week for up to four months until July 31.

Williams says she’s been able to file for unemployment in Connecticut as of April 1, the first official day Macy’s workers were on furlough. Due to the crush of demand in unemployment claims, she estimates it’ll be another three to four weeks until she receives an unemployment check.

In Miami, Fla., 30-year-old Andres Balzan was furloughed from his job in merchandise support for Macy’s. He began trying to file for unemployment Wednesday morning but found the Florida unemployment site was down.

“I’ve been hearing from other [Macy’s] colleagues that the site is terribly slow, or they may get through to the end of the session, and it won’t submit for them,” he adds.

The U.S. Labor Department reported Thursday that 6.6 million new unemployment claims were filed in the past week, adding up to roughly 10 million Americans who’ve filed for unemployment in the past two weeks.

Can furloughed employees look for other work?

Yes, furloughed workers may try to find a new job until their old one resumes.

Keep in mind that this could impact a worker’s eligibility to receive unemployment insurance, Evermore says, or how much benefit they can receive.

While it varies by state, Evermore says furloughed workers who pick up a part-time job may still be eligible for partial unemployment. It’s unclear how federal guidance will play out state by state, but she adds workers who receive partial unemployment are likely to also be eligible for the additional $600 weekly benefit provided by the CARES Act.

The day before the Macy’s furloughs went into effect, Williams says the company emailed employees a list of other employers currently hiring nationwide, including Walmart, Aldi and Costco. However, because one of her four kids has asthma and is at high-risk of infection if exposed to coronavirus, Williams says she’s unlikely to take up new work while the health crisis continues.

Balzan, meanwhile, says he’ll seek temporary employment until his Macy’s job resumes, but opportunities are limited.

“I don’t even know where to begin to look,” Balzan says. “But if I can find employment, I’ll take it immediately.”

Balzan says he needs income to be able to pay his rent, bills and tuition earning an IT degree at Florida International University, which is conducting classes online. He’ll receive two more paychecks from Macy’s this month, but otherwise is hoping he can make ends meet with the $1,200 stimulus check, and by filing for unemployment or finding a new job.

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