Furloughs and Layoffs: What PFMs Need to Know

By Barbara O’Neill, Ph.D., CFP®, AFC® boneill@njaes.rutgers.edu.

Millions of American workers were furloughed in 2020. While furloughs in the military are rare, they may impact a spouse’s employment in civilian jobs. Also known as  “temporary layoffs,” furloughs occur in public and private sector workplaces.

Woman holding her head and sitting in front of laptop
Photo by Andrea Piacquadio from Pexels

In some cases, employers ask for volunteers to take unpaid leave in exchange for more time off. In most cases, however, furloughs are mandatory and every worker is told to work less, and therefore, earns less.

Here are six suggestions for Personal Financial Managers (PFMs) to pass on to military families facing furloughs:

  1. Seek Information
    Find out when and how your paycheck will be reduced and the procedures that your employer has established for taking unpaid time off. These details will affect your financial and time use plans. Some employers are closing completely and implementing full furloughs with no pay, while others are giving workers a choice of days off or mandating specific time-off periods (partial furloughs).
  2. Calculate Your Loss
    Figure out what you earn in a day (for partial furloughs). For example, if you earn a $40,000 gross income, divide this number by 260 (average number of workdays in a year). The result ($154) is daily gross pay. Multiply this number by the federal marginal tax rate for your tax filing status and subtract it from gross daily pay to determine daily after-tax (net) pay. For example, $154 – ($154 x .22 or $34) = $120. Multiply lost daily net income by the number of furlough days (e.g. $120 x 20 = $2,400).
  3. Save a Surplus
    If you have advance notice about a furlough, gradually save up at least some of the money that you will lose (e.g., 15 days of daily after-tax pay) by reducing expenses. Put this money in a money market fund or savings account until it is needed. Then draw down these savings as a replacement for lost income. Save as much as you can. Any amount of savings is better than none.
  4. Spend Less
    Try to reduce monthly expenses by the amount of lost monthly income. Start with variable expenses (e.g., food, clothing, and entertainment) and make cuts there. Track your spending for an entire month to identify expenses that can be reduced during the furlough period. Apply for unemployment benefits and reach out for community services that can help stretch a reduced income.
  5. Suspend Voluntary Deductions
    If you cannot close the gap between reduced income and household expenses through spending reductions alone, consider temporarily suspending (or reducing) voluntary payroll deductions, such as retirement savings plan contributions, until the furlough period ends (for partial furloughs). Contact your employer’s HR department to complete the necessary paperwork.
  6. Savor the Time Off
    Resist the urge to work (e.g., check business e-mails) on partial furlough days and spend the unpaid time doing enjoyable or necessary activities. Ideas include inexpensive day trips, webinars, walking or other physical activity, watching a movie, and home maintenance tasks. Human resource experts also advise using this time to upscale your human capital via online courses and training programs. Furloughs are “an act of hope” that jobs will come back but, unfortunately, some will not return.

For additional information about furloughs, review these resources from the Association for Financial Counseling and Planning Education (AFCPE):

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