Many employers facing a temporary business downturn make use of employee furloughs to reduce costs in the face of slackened demand for their products or services. On the plus side, furloughs can save jobs, and many employees would prefer to keep their jobs, even if the result is a temporary loss of pay.
On the minus side, many HR experts consider furloughs to be a flawed solution, at least under certain scenarios. Mandatory furloughs “punish” all employees equally, even your most talented and indispensable workers. Instead of cutting back the livelihood of everyone in your employ, you could first test the waters with a voluntary furlough program.
If you choose to institute employee furloughs, you’ll need to decide how to handle your employees’ benefits during the furlough period.
A furlough is, basically, time off without pay. The goal is to structure furloughs to meet your business needs while at the same time giving your valued employees incentive to work with you through a rough patch and not seek work elsewhere. Furloughs can be any length of time that works for your business’s — and your valued employees’ — needs. Most tend to range from a few weeks to under a year, although “indefinite” furloughs are also an option.
Good communications are essential to successful furloughs. Be sure your employees know what they can expect. If you’re asking employees to give up hours (and pay), they’re likely to feel better about doing so if they fully understand the reasons behind it. This can go a long way toward reducing stress in your work place.
Another significant consideration is how your business will weather this period of curtailed hours. Often, when hours are reduced through furloughs, fewer employees end up taking on a greater work burden. What kind of impact is this going to have on your company, on your remaining employees — and on your customers?
Furlough Guidelines for Hourly Employees
You are within your rights as an employer to impose furloughs on hourly employees. You’ll need to calculate the impact of these reduced hours on your business’s operations. If you’re thinking about discontinuing or reducing your employees’ benefits during their time on furlough, you should research your state’s employment laws regarding any mandatory treatment of your employees’ benefits during this period.
These benefits may include holiday pay, retirement plan contributions, and health insurance. If you haven’t contractually agreed to pay these benefits, there’s nothing in the federal law book that says you have to continue them during a furlough. Although if the furlough is of a relatively short duration, your employees may hold the expectation that you will continue to pay out benefits during this time period — as they are already taking a cut in pay.
Furlough Guidelines for Salaried Employees
Basically, the same guidelines for furloughs apply to salaried (exempt) employees. If salaried employees are placed on furlough, their cut in pay would not impact their exempt status. That’s because salaried workers are not legally entitled to compensation during weeks in which they don’t work, and thus, they’re not technically taking a pay cut.
One school of thought considers furloughs to be an inferior alternative to layoffs. In brief, you should at least give some thought to laying off those employees whose contributions least impact your day-to-day business operations — as an alternative to furloughs. If you’re concerned about your best employees seeking work elsewhere during a furlough, layoffs might be your best option for the long term. If you do choose to lay off employees, you’ll need to remain in compliance with labor laws, making sure to pay careful attention to anti-discrimination regulations.