Furloughs can reduce need for layoffs

Ask a room full of gainfully employed people if they would rather be laid off, take a 20 percent pay cut, or be forced to go on temporary unpaid leave, and you will likely find that the last option gets the majority of votes. In today’s economy, employees are willing to accept almost anything that allows them to keep their jobs – and health insurance.

For most organizations, payroll is the single largest budget item and, when economic times get tough, the first place to cut. Layoffs are always an option. Organizations need to be aware of the associated costs, such as severance pay, unemployment benefits, payouts on accrued vacation hours, outplacement services – and then those associated with recruiting and training new people when the economy turns around.

Colorado State University and the University of Colorado have announced that they will layoff employees rather than implement furloughs to cut costs for the coming year, while the University of Northern Colorado has instituted a salary freeze without layoffs or furloughs.

Furloughs may be a prudent alternative, especially for companies with lean teams or for organizations that want to be ready with a talented workforce when business picks up.

For example, the state of Colorado came close to balancing its 2009 budget in part by asking government employees to take eight days of unpaid leave before the end of the year. General Motors is idling workers at 28 plants across the country until July 13, for a total of 11 weeks. Gannett Co. Inc., the nation’s largest newspaper publisher, required most of its 31,000 employees from the executive suite to the loading dock to take a week of unpaid leave during the first quarter of this year, and another week during the second quarter.

Arrow Electronics, a distributor of electronics components and enterprise computing solutions with nearly 13,000 employees worldwide, recently added furloughs to the list of measures it is taking to trim costs. The furloughs are company-wide but implementation varies based on salary level and job classification as well as the specific needs of each department. A significant number of Arrow’s U.S. employees will be required to take six to 10 days off over the calendar year. According to Jonathan Lee, senior human resources manager of Arrow’s Enterprise Computing Solutions Division in Englewood, “Some reductions in our workforce were necessary but by implementing furloughs we have been able to minimize the impact of layoffs. Other cost-saving measures we have taken include temporarily suspending salary increases, eliminating unnecessary travel and deferring new requests for tuition assistance.” Lee attributes employee acceptance of furloughs to the fact that Arrow’s leadership has been very transparent in communicating the various steps the company is taking to lower expenses. Employees are given freedom to plan and budget for their time off. “We initially met with some resistance from our people,” he admitted. “It is not ideal, but overall, employees understand the business rationale behind the furlough program.”

McWhinney in Loveland currently has two associates who have volunteered to take unpaid time off or work fewer hours over the next year. Dave Morante, VP of People Services at McWhinney, said, “Furloughs are a viable option when an organization needs to save money in the short term but wants to retain talent in the long run.”

Share the hardship

In some organizations, furloughs are mandatory and implemented across the board.  The goal is to share the hardship to prevent some employees from losing their jobs completely. In other organizations, unpaid leave may be optional or department-specific.

Employees can be required to use accrued paid time off or permitted to save vacation hours for use at another time. In some cases, workers are even given the option of borrowing against and collecting unearned PTO during their leave.

Advanced Energy, headquartered in Fort Collins and operating across North America, Europe and Asia, will enforce company-wide plant closures for 13 weeks over the next year. “The furloughs are designed for everyone,” according to CFO Lawrence Firestone. “Some exceptions will be made in certain locations for essential personnel to work during the closures. On a positive note, this tactic keeps more of our workforce employed and with benefits. On the other hand, this is essentially a pay cut for our staff.

By enforcing closures for 13 out of the next 52 weeks, we are able to keep 25 percent of our employees working, whereas the alternative would be to do additional layoffs to achieve the same cost result.”

Labor law compliance issues

Companies must plan furloughs carefully to ensure they remain compliant with state and federal wage and hour laws. For example, under the Fair Labor Standards Act (FLSA), exempt employees are entitled to receive their full salary for every week in which they perform any work. To avoid issues, furloughs involving exempt employees should be taken in weeklong increments at the beginning of the workweek. Furloughs for non-exempt employees can be less rigid. Non-exempt manufacturing employees may be asked to work four days a week until production needs increase. Organizations should seek legal counsel prior to implementing a furlough program to ensure they are following applicable FLSA guidelines.

Carrie Pinsky also writes the blog, The Business Routes Less Traveled, at www.ncbr.com

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