Furloughs go white-collar: How to keep them fair and legal

In past recessions, furloughs—requiring employees to take a certain number of unpaid days off—were mostly limited to blue-collar workers. But this downturn is different.

In the past two years, everyone from tech firms to state government has furloughed their 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 Watson Wyatt survey.

Furloughs have several advantages over straight layoffs. Organizations cut costs by reducing payroll, yet don’t lose trained workers. They can repeat or lengthen furloughs as needed and avoid the expense of recruiting, hiring and training when business bounces back.

Furloughs can increase the workload for remaining employees and lower morale. Employers typically continue to pay benefits to furloughed employees.

The structure

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.

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.

• Consider basing length of furlough on pay grade. You can furlough all employees for the same length of time or furlough them according to their salaries. In such cases, the highest-paid employees take proportionately longer furloughs than those who earn less. Make sure no pay group receives disproportionately long furloughs.

Example: When the University of Maryland in January furloughed 20,000 employees, those earning more than $90,000 per year were furloughed for five days. Those earning less than $30,000 didn’t lose any work time. Employees in the middle missed one, two, three or four days, depending on their salaries.

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.

Furloughs and the law

Notify employees in writing that they can’t work during the furlough without written approval from top management. If they perform any work, you’ll have to pay them.

Consult with your attorney before furloughing low-paid exempt workers. Any reduction in hours that cuts pay to less than $455 per week will jeopardize their exempt status.

Most state laws require employers to provide advance warning of furloughs. Check your state’s law.