What Are the Advantages and Disadvantages of Employee Furloughs?
Employers Must Weigh the Pros and Cons of Employee Furloughs for the Business
Furloughs are mandatory time off from work with no pay. Generally implemented by employers as a cost-saving measure during tough economic times, there are advantages and disadvantages to the use of furloughs as an alternative to layoffs.
Neither one should be taken lightly, as neither is an easy fix. Both have a profound impact on the morale of the employees who remain in the case of a layoff and those who have to take unwanted time off from work with no pay during an employee furlough.
These are the advantages and disadvantages of furloughs.
Advantages of Furloughs
The employer avoids layoffs for a period of time so employees have jobs. Even though the employees are not receiving paychecks during the furlough, they have the assurance that they will have jobs in the future.
The employer saves compensation costs. Employees who are not working don't need to be paid. There are a few cautions in this. For non-exempt employees, they must be paid for all work done, so if an employee comes in for an hour, he needs to be paid for that hour.
An exempt employee must receive a full day's pay if they do any work at all. So, for instance, if you call an exempt furloughed employee for a quick question, that counts as working. You lose the advantages you hoped to receive by doing the employee furloughs.
For seasonal furloughs, employees can plan around the expected time off. If everyone knows that the plant will shut down every July, or that the plant will close over the holidays in December, then employees take that into consideration when budgeting and planning.
So, it's not necessarily traumatic. Some companies do this predictability for years and maintain a stable workforce.
You don't have to rehire to replace employees. If you choose layoffs and business increases, you'll have to hire replacements. While there's a good chance that some of the laid-off employees will want to apply again, many will not.
If you, instead, tell employees that they will return to work in X weeks, a higher percentage will return. This is good for your business.
Disadvantages of Furloughs
You are putting your best employees at a disadvantage. These are the top performers you really need to rebuild your business, following the downturn. The best employees are the ones who are most likely to find new jobs.
Employers save money, but not as much as they think they will, because so many of an employer’s costs for benefits continue during furloughs. Salary is only a portion of what it costs to keep an employee employed. Your employees may be eligible for unemployment for the furlough period, which can increase your costs.
If the amount of work remains constant, the returning workers feel overloaded and this may affect the quality of their performance and the products they produce.
If the company closes down, then you have start-up costs. Just getting things going again can take time and money.
Customers may be unhappy talking to a variety of people rather than their usual contact. Or, your customers may experience a longer wait for service.
The internal culture and relationships are often injured. Teamwork is affected by the loss of coworkers who are not at work.
Projects take longer to move forward. If people are unsure about the company's commitment to them, they become unsure about their commitment to the company. They become insecure about the future of the company.
Your employees experience stress from work expectations. They fear that the furloughs will not solve the problems and that layoffs will come next. Gossip increases and work productivity decreases.
Innovation and continuous improvement fall by the wayside when employees are given less time at work, experience more time catching up incomplete work, and the workload increases because of missing coworkers.
You best employees may start job searching. All employees think about updating their resumes.
Companies sometimes make the mistake of laying off the lower level employees, who are precisely the people doing the work.
They keep the high level, highly paid people working which means that no product is manufactured, but the salary costs don't drop that much.
While the disadvantages appear to outweigh the advantages of furloughs, a cash-strapped business or organization, after weighing alternatives, may find furloughs appealing.