Furloughs are mandatory time off from work with no pay. They generally are implemented by employers as a cost-saving measure during tough economic times or otherwise slow periods for a business.
Furloughs differ from layoffs in that furloughed employees know that they have a job that will resume at some point in the future. While laid-off employees sometimes are brought back to their jobs, it's less likely to be the case.
Why Might Employers Place Employees on Furlough?
Some furloughs are planned due to seasonal downturns in business. For example, some businesses in tourist destinations that are busy during only certain times of the year may shut down altogether during their off-seasons.
In a second example, a company might develop a policy that requires employees to take four days off between Christmas and New Year's. This time off of work qualifies as a furlough because the employees must take the time they took off out of their accrued paid vacation time bank.
However, not all furloughs are regularly scheduled events. Sometimes, economic factors like a recession, or events specific to a company, such as a fire that destroys work areas, might force a business to temporarily slow or cease production or activity. In these instances, employers are likely to put employees on furlough.
Employers and employees will find that there are advantages and disadvantages to choosing furloughs instead of layoffs.
Advantages of Employee Furloughs
While no one wants to be out of work, furloughs can be beneficial to either employers, employees, or both, depending on the specific circumstances:
Even though employees are not receiving paychecks during a furlough, they have the assurance that they will have jobs in the future. This can provide some level of comfort, especially if employees know the furlough will be for only a short period of time.
Reduces rehiring needs
While no guarantee exists that all furloughed employees will return following the time off from work, companies can be fairly confident that they'll have experienced workers ready to return as soon as the doors re-open for business.
Allows for planning
If it's a seasonal furlough and everyone knows 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. Many companies do this every year and maintain a stable workforce.
Saves compensation costs
Employees who are not working don't need to be paid. While every business would like to be busy 12 months out of every year, that's not always the case. So, by reducing staff or shutting down completely for a period of time, businesses can be more profitable, which in the long run can make them better employers.
Disadvantages of Employee Furloughs
Obviously, closing up shop and telling employees there's no work for however long is not always positive. These are the happenings that can occur as a result.
Losing top employees
The top performers you really need to build your business around are the ones most likely to find new jobs while on furlough. Even if the furlough is expected to be for only a week or two, employees likely will use that time to update their resumes and start job searching.
Employers save money during a furlough, but there still are expenses. Upper management typically earns the highest pay, and those who need to do some work to prepare for the end of the furlough likely will come from upper management.
Additionally, benefits may still be paid to employees during a furlough, depending on the length of the furlough. The bottom line is that expenses will be cut, but they won't be eliminated.
Re-opening takes time
Even after a relatively short furlough, it will take time to get things back up and running to previous levels. Employees will need time to get back into their routines with the same efficiency, and if any employees did not return, some employees may be in different positions, and new employees will need to be hired and trained.
Work is interrupted
Innovation and continuous can fall by the wayside when employees are furloughed. Projects that were only partially complete when the furlough began will need to be restarted, and whatever momentum employees previously had may have been lost.
Lower employee morale
If a furlough is unexpected, employees can become insecure about the future of the company. Staff will experience greater stress, gossip, and rumors increase and work productivity decreases.
The Bottom Line
Because of the disadvantages as well as the advantages of employee furloughs, employers need to think carefully about the ramifications of this decision for their workforce. While thinking about employee furloughs, employers need to consider alternatives to traditional layoffs and employee furloughs.