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Employee Furlough: What You Need to Know

August, 2021

What is a furlough ?

Furlongs are mandatory temporary time off from work, with no pay. It can be an unpaid leave of absence, pay cut or reduction in working hours, etc. It is being used as a strategy to keep employees on staff with an aim to protect the company’s bottom line.

All organizations are forced to make difficult decisions like furloughs or layoffs when facing financial hardship.

The main objective of furlough is to cut down costs while keeping your employees employed; it may be either to shift funds in the other business processes or avoid critical spending during times of hardships.

In furloughs, employees do not receive their pay, and they often get their health benefits and life insurance. Furlough employees can apply for unemployment, but the laws for furloughing employees may vary from state to state, so employees should ensure this with the company’s legal counsel before applying for unemployment.

The main difference between furloughs and layoffs is that furloughed employees have a job that will resume shortly, but laid-off employees, brought back to the same position is less likely to happen.

Why might employers place employees on furlough ?

Though some furloughs are planned due to seasonal downtimes in business, some others may be due to financial instability.

For instance, companies in tourist destinations are busy only during certain times of the year and are shut down during other times of the year. So they may require employees only for this time of the year and not during the off-seasons.

Other reasons may lead to a furlough like recessions, pandemic, etc. These factors may force a business to slow or cease activity for a certain period temporarily.

Advantages and disadvantages of employee furloughs

Ideally, no employee wants to be out of work; still, furloughs can be helpful to employees and employers in certain circumstances.

Advantages of employee furloughs

1. Avoid layoffs

The significant benefit of furlough is that the employees have the assurance that they will or may have jobs in the future, though they are not receiving paychecks during this time. If the employees know that their furloughs are for a short period, they can provide some comfort level.

2. Save compensation costs

For employers, employee furlough helps to reduce labor costs due to a decrease in paid salaries. Moreover, employee furloughs need not cover early retirement benefits, outplacement, severance, etc.

3. Retain talent pool

Employee furlough helps to have a talent pool in hand for the employers. This helps to reduce the time for hiring and training new employees. Managers can count on these talented hands when required. Employees will also be ready to accept the offer rather than losing their job altogether.

4. Allows planning

The seasonal business may need the employees only during certain times of the year. And when both sides are aware of this, employees can plan and use the other time for something useful.

5. Tweak business processes

Employee furlough help employer to rebrand and recognize their business operations. It helps them to have a stable workforce and generate more revenue.

Disadvantages of employee furloughs

Though there are advantages for employee furlough, there are many disadvantages also.

1. Job searching

Furlough leaves may not be pleasant for all employees, especially those depending on a regular paycheck. So employees may start searching for other jobs, and the employers may lose the talented heads from the pool.

2. Lower performance

As the furloughed employee may return to the same workload after many days, they may feel overloaded. There are chances for this to affect the work quality.

3. Re-opening takes time

Usually, it may take time for the employees to get back to work and run things like before. They will need some time to return with the same efficiency; if new employees are hired, they may need time to train them.

4. Unsatisfied customers

Customer experience may affect due to employee furlough. Customers might face longer waiting times or lack experienced hands to deal with specific situations.

5. A decline in company morale

Employee furlough may affect the company morale. It can cause a sense of insecurity in other employees, which may eventually affect performance, loyalty, commitment, etc. Employees tend to be insecure about their future.

Tips for a successful furlough notice

Make use of these tips to implement a furlough successfully:

1. Establish credibility

Have a senior executive or CEO deliver the furlough notice to the employees.

2. Define furlough leave

Explain furlough leave to your employees clearly. Do not think they are aware of this already.

3. Provide security

Explain clearly how furlough will affect the employee benefits, what it means to employees, and how this decision will affect their future with the company.

4. Clear doubts

Give your employees a chance to clear their doubts, talk to them and help them to express their concerns openly.

To sum up

Though it is difficult for employees to stay out of work, employee furloughs are beneficial for the employees and employers at times. Employees can plan the furlough leave productively.

Furlough leaves, when implemented successfully by the employer with a well-defined road map, can turn out to be one of the powerful business tools.

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