Our Human Resources Blog

The good news is there are signs that the economy may be strengthening. New home sales were up in July and last quarter the Gross Domestic Product(GDP) declined at a much slower rate than expected. While these positive signs could indicate the recession may be coming to a close, the bad news is many businesses continue to struggle with shrinking budgets and ways to reduce their operational costs.

One cost cutting tactic that is becoming increasingly popular with the private sector is furloughing workers.  This strategy of mandating leave without pay has commonly been used in the public sector and with universities and airlines as a way to cut costs while avoiding the loss of talent.

One of the largest expenses for many businesses can be payroll. Furloughs can be an effective way to control these expenses with the least impact to employees. Everyone "shares the pain" proportionally.  With the uncertainty of how long a recession will last, furloughs also take into consideration preserving human capital until conditions improve. Companies don't want to be put in the position of laying off people and then rehiring them at a later date. Furloughing takes into account the cost of staffing up and retraining when the economy does turn around.

While furloughs can be a viable alternative to layoffs, they aren't without complications and risk to businesses. Employers unfamiliar with furloughing can be exposing themselves to legal issues and/or negatively affecting the morale of the company- both costly mistakes.

Before a company considers furloughing it would be wise to look at all of the different aspects and understand the guidelines to devise an objective, responsible policy.  A policy that considers the legal risks, the hidden costs and how it can affect the morale of their employees.  A well thought out plan can go along way in protecting a company and retaining talent for the future.