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Furloughs are often a much better alternative to layoffs for both companies and employees. However, until Covid-19, they were infrequently used in the U.S. During the Great Recession only 0.5% of the U.S. workforce participated in furloughs, while one in five workers experienced a layoff. Today, in the most uncertain time any of us have ever known, many companies, including Tesla, GAP, Macy’s, and Marriott, are turning to furloughs, creating a road to return when there is once again work to do.
Furloughs enable companies to reduce staffing costs while sidestepping layoffs, and are especially helpful during times like these, when many industries are at a near stand-still. Furloughed employees either work a schedule of reduced hours, or, as is more common now, are put on leaves that can last as long as the company needs. Most furloughed employees receive no pay from the company, but companies generally continue covering health insurance. Employees can draw unemployment benefits during their furlough and can also work for other companies. The major benefit of furloughs to employees is that they have a job to return to, while companies don’t have to go through the painful and expensive process of rehiring and training new employees and losing talent that they’ve spent years cultivating.
However, questions about implementation abound. Sandra has spent 10 years researching best practices for layoffs and furloughs, and has distilled her research into some important points managers should keep in mind when considering furloughs.
Before Implementing Furloughs
The first is step is to make sure furloughs are the right decision. Furloughs are best used as a worker-retention strategy in the face of temporary financial difficulties (like recessions and pandemics). However, if your company is dealing with permanent changes, such as decreased demand due to advancing technology, or new strategies that require employees with entirely different skills, a furlough will only delay the inevitable layoff.
Second, managers need to carefully consider the types of employees that will receive furloughs. Part-time, temporary, or contract employees may not be eligible for unemployment benefits while on furlough, and the administrative costs of furloughing them may outweigh any potential savings. Meanwhile, the risk of losing star talent or the cost of having employees with specialized knowledge stop working may also outweigh the savings. When Honeywell implemented furloughs during the Great Recession, it exempted engineers on high-priority new product development projects and customer-facing employees. CEO Dave Cote also refused furlough requests from senior leaders who volunteered in solidarity with their employees, on the grounds that he needed them at work. Instead, to share the pain, many leaders decided to follow Cote’s example and forego their bonuses.
Third, furloughs come with administrative costs that var
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