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As published in the October 1, 2009 Toledo Business Journal

Furlough Use on the Rise

Furloughs are becoming increasingly viewed as a viable option for controlling labor costs while retaining talent, a new survey by global management consultancy Hay Group has found.

Among more than 100 US organizations polled in May, more than one-third either has a furlough policy or is using furloughs as a way to control costs. Within that group, half anticipate using furloughs to cut costs for six to 12 months. And while furlough maximums vary from four days to one year, more than half of those using them or who have a furlough policy don’t have an established maximum length, the Hay Group found.

Among those using furloughs or who have a furlough policy in place:

“They’re all struggling with it, honestly,” stated Marie Dufresne, a senior consultant and national benefits practice leader for the Hay Group. “They don’t want to terminate, they don’t want to layoff or [institute a] leave of absence.”

Training mid-level managers is a critical component of using furloughs, Dufresne explained.

Employers are implementing furloughs without due consideration of all the legal risks. Accepting “off the clock” work from employees on furlough, for example, could result in a class-action lawsuit against the organization for violation of the Fair Labor Standards Act (FLSA).

“If you’re going to furlough half of your team for two weeks and the other half the other two weeks, you’ve got to figure out what the rules are,” Dufresne noted. “It’s got to be done at the manager’s level. This is why we have to have constant education, guidelines, and policies.”

Furloughs are easier to manage when an entire city government shuts down, such as when Chicago mandated a three-day furlough in August. Police, fire, and tow truck drivers were among the few workers allowed to remain on the job. And Michigan furloughed about 37,400 state employees over six intermittent Mondays and Fridays during the summer.

But in situations where a team is furloughed for two weeks, “that’s a little more difficult to do. What do I do, take their Blackberries?” Dufresne asked. “If nothing else, employers have to be able to show good faith effort in compliance,” she said, by doing such things as:

“People weren’t even planning; it was just a knee-jerk reaction” to being smacked by “this crazy economy,” Dufresne said. However, “this is not something you do overnight. This is something where you say ‘what are the legal ramifications and rules and what are the ramifications on the employees?’”

HR professionals must make sure management understands there are rules governing furloughs and look at all aspects. That includes the legalities, the employee perspective, and appropriate performance adjustment.

The purpose of the Toledo Area Human Resource Association (TAHRA) is to promote the enlightened practice of the Human Resources discipline, to enhance the professional and personal development of individuals engaged in the practice of human resources, and to provide occasions for the interchange of ideas and information among those who are members of the organization.

Information provided by the Society for Human Resource Management.

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