Furlough Use on the Rise

By Kathy Gurchiek Aug 21, 2009
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Furloughs are becoming increasingly viewed as a viable option for controlling labor costs while retaining talent, a new survey by global management consultancy Hay Group has found.

Among more than 100 U.S. organizations polled in May 2009, more than one-third either has a furlough policy or is using furloughs as a way to control costs. Within that group, half anticipate using furloughs to cut costs for six to 12 months. And while furlough maximums vary from four days to one year, more than half of those using them or who have a furlough policy don’t have an established maximum length, the Hay Group found.

“It was really clear to us that this was becoming a bigger issue than we thought at the time, and it was more pervasive than we thought,” said Marie Dufresne, a senior consultant and national benefits practice leader for the Hay Group.

Among those using furloughs or who have a furlough policy in place:

  • About 75 percent of those on furlough are nonexempt employees; about 68 percent are exempts or equivalent.
  • 65 percent do not allow employees to volunteer for full- or partial-length furloughs.
  • 71 percent indicated compensation levels are being cut commensurate with time off; 52 percent indicated incentives would not be impacted due to reduced annual pay.
  • 75 percent indicated accrued, allotted vacation or floater time continues to be accrued during furloughs.
  • More than 60 percent continue employees’ health care benefits during the furlough period but are required to pay the employee’s contribution portion.
  • More than 60 percent indicated employer contributions to defined contribution plans are continued based on reduced pay; nearly 10 percent said the employer match is discontinued during furloughs.
  • 80 percent are continuing employee 401(k) loans, as they would when employees take leaves of absence.
  • 30 percent of furloughs are intermittent, 27 percent are continuous and 43 percent are “other.” One week, 60 days or a short amount of days frequently constituted “other.”

“They’re all struggling with it, honestly,” Dufresne said. “They don’t want to terminate, they don’t want to layoff or [institute a] leave of absence.”

Training mid-level managers is a critical component of using furloughs, Dufresne told SHRM Online.

The survey found that nearly two-thirds (65 percent) use passive enforcement—reminders, communication, the honor system—of the “no work” provisions. That can be fraught with problems.

Employers are implementing furloughs without due consideration of all the legal risks, SHRM Online reported June 12, 2009. Accepting “off the clock” work from employees on furlough, for example, could result in a class-action lawsuit against the organization for violation of the Fair Labor Standards Act (FLSA).

“If you’re going to furlough half of your team for two weeks and the other half the other two weeks, you’ve got to figure out what the rules are,” Dufresne said. “It’s got to be done at the manager’s level. This is why we have to have constant education, guidelines and policies.”

Furloughs are easier to manage when an entire city government shuts down, such as when Chicago mandated a three-day furlough beginning Aug. 17, 2009. Police, fire and tow truck drivers were among the few workers allowed to remain on the job, Chicago 7 News reported. And Michigan furloughed about 37,400 state employees over six intermittent Mondays and Fridays during the summer of 2009.

But in situations where a team is furloughed for two weeks, “that’s a little more difficult to do. What do I do, take their Blackberries?” Dufresne asked. “If nothing else, employers have to be able to show good faith effort in compliance,” she said, by doing such things as:

  • Understanding what the guidelines for the furlough are, “because they’re very clear in the FLSA.”
  • Figuring out, within your organizational structure, how to build protections for the company while educating employees as to why they cannot continue to work while on furlough.
  • Communicating to employees—in a friendly, empathetic way—why they cannot work off the clock during their furlough.

“People weren’t even planning; it was just a knee-jerk reaction” to being smacked by “this crazy economy,” Dufresne said. However, “this is not something you do overnight. This is something where you say ‘what are the legal ramifications and rules and what are the ramifications on the employees.”

That includes adjusting goals when appropriate.

A furlough that’s for a day here or there likely won’t make much of a difference on employee goals, she said, but “you have to be prepared to modify those things and address those [employee] questions” when an impact is likely. It can be a morale issue and tempt some to work off the clock.

“At least give them some sense of relief that they don’t feel ... ‘I have to work twice as hard in order to make [the work] up.’ That’s the piece in most furlough situations that gets skipped, addressing that issue.”

HR professionals must make sure management understands there are rules governing furloughs and look at all aspects, Dufresne told SHRM Online. That includes the legalities, the employee perspective and appropriate performance adjustment.

“Those are the things I’d hold HR accountable for if I was running a company.”

She also cautions against overusing furloughs.

“You want people to stay with you when things get better.”

Kathy Gurchiek is associate editor for HR News. She can be reached at kathy.gurchiek@shrm.org.

Related Articles:

Avoiding Furlough Fallout, HR Magazine, September 2009

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