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Control costs with furlough strategy that’s flexible, fair

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in Hiring,Human Resources,Office Management,Payroll Management

If your organization is limping and wheezing through the economic downturn, you’ve no doubt considered cutting down your labor burden to save money. Before you resort to radical surgery—in the form of layoffs—consider a more benign cure that increases the odds of a full recovery.

Furloughs—requiring staff to take unpaid time off—can reduce payroll costs without inflicting long-term damage that could keep you from returning to full capacity once the economy rebounds.

In past downturns, furloughs were limited to blue-collar workers. With this recession, sectors such as technology, publishing and state government are furloughing white-collar employees.

Eleven percent of large U.S. companies have furloughed employees since the recession began, and 6% plan to do so over the next 12 months, according to a survey by Watson Wyatt Worldwide. The firm reports that more organizations are seeking advice about mandating unpaid time off.

Furloughs have several advantages over layoffs. Organizations cut costs during slow periods by reducing payroll without losing trained workers. They can repeat or lengthen furloughs as needed. They avoid the expense of recruiting, hiring and training employees when business bounces back.

Furloughs can increase the workload for remaining employees and lower morale. Employers typically continue to pay benefits to furloughed employees. Furloughed employees usually can’t apply for unemployment.

Experts offer the following options for furloughs:

• Conduct a one-time furlough for consecutive days or weeks. Furloughs handled in this manner generally last one to four weeks. Example: Ashland Inc. furloughed almost all of its employees in the United States and Canada for two weeks. 

• Spread furloughs over an extended period.
Examples: At Pella Corp., employees spend one week on furlough every four to six weeks. Rockwell Automation furloughs all employees for three days every three months.    

• Implement furloughs in ways that avoid the appearance of unfairness.
This can reduce the risk that unhappy employees will sue you. Don’t furlough only the lowest-paid employees or only those at the top of the pay scale.

There are several ways to structure furloughs so they don’t inequitably harm certain workers. You can furlough all employees for the same length of time.

Or you might furlough employees according to their salaries, requiring the highest-paid employees to take proportionately longer furloughs than those who earn less. Make sure no pay group receives disproportionately long furloughs. Example: When the University System of Maryland in January furloughed 20,000 employees, those earning more than $90,000 per year were furloughed for five days. Those making less than $30,000 didn’t lose any work time. Everyone in between missed one, two, three or four days, depending on their annual pay.

Organizations are on solid legal ground with either approach, if implemented correctly.

However, expect griping. Top performers believe marginal workers should be furloughed. Employees with seniority believe the last-hired should be furloughed first. Low-salary workers believe they can least afford to stop working temporarily.

Carefully plan how you will communicate furlough plans to reassure workers that you’re doing everything possible to minimize time off and spread the pain fairly.

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