The Advantages and Disadvantages of Furloughs

The Payroll Company HR and Payroll Solutions, Alternatives to Layoffs The Payroll CompanyHuman R

the-advantages-and-disadvantages-of-furloughsNearly every business experiences financial difficulties.  However, the last thing an employer wants to do is reduce or completely take hours away from a hardworking employee.  A sad truth of doing business during difficult times is being forced to lay off employees and cut wages. They are unfortunate but sometimes necessary evils.

Furloughs are an alternative in that they temporarily sideline employees.  However, you might not know what “furloughed employees” means. Below we delve into what a furlough means, discuss the pros and cons of a furlough vs a layoff, and the impact furlough has on employees.

What is a Furlough?

If you are like most people, you have heard of “furloughs” in passing, yet you probably aren't completely certain as to what a furlough really is.  Furloughs are best defined as a temporary leave of absence from work in which the employee is not paid.  The expectation is that the employee will eventually return to work when the business picks back up or when the season changes and demand returns.  

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The purpose of a furlough is to keep hardworking employees on the company’s staff without compromising what matters most: the bottom line.  Instead of terminating employees due to seasonal demand shifts or other temporary setbacks, the furlough briefly sidelines workers to control costs without sacrificing hard-earned relationships with loyal employees.  The workers remain employed with the business yet they do not receive their next paycheck or several paychecks in full.  The business uses the money saved to cover costs in one or several departments, satisfy outstanding financial obligations or offset increases in spending.

What is a Layoff?

Layoffs are not exactly the same as furloughs.  If an employee is laid off from his or her job, he or she is terminated from employment.  When a layoff occurs, there is no expectation that the employee will return to work in the near future or at all.  This lack of an expected return is the primary difference between layoffs and furloughs.

Businesses lay off employees as a result of insufficient capital or a reduction in demand.  Though layoffs have the potential to be temporary, companies also have the option of using a furlough as opposed to a layoff.  Furthermore, it is also worth noting that an employee who is laid off is not considered to be at fault for his or her dismissal.  An employee who is laid off and was not the cause of the layoff will likely be approved when applying for unemployment benefits.

Why do Businesses Furlough Employees?

Though furloughs connote negativity, the truth is they have the potential to be mutually beneficial to employees and employers.  From an employer’s perspective, furloughing employees makes financial sense due to economic pressures.  Furloughing employees puts a temporary hold on salaries and hourly paychecks to workers so the business can get its financial house in order.  

Some businesses proactively furlough employees in anticipation of heightened demand at a point down the line when it is that much more financially prudent to rehire personnel to meet that demand. The beauty of furloughs is they bring back employees who have already been trained.

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What are the Advantages of Furloughs?

As a business owner, furloughs are a strategic option as they allow the business to retain valued employees while temporarily putting their financial compensation on pause.  Though little work is completed during the furlough, it provides the business with an opportunity to metaphorically catch its breath, ultimately preventing permanent layoffs and significantly decreasing the need for the costly training of new hires.

Business owners and managers who opt for furloughs have an opportunity to chart the course of the business without ruining employees’ financial pictures.  Though employees go without a paycheck for a pay period or two, they are likely to maintain their benefits through this period of time while the company reduces overhead costs through a pause on salaried and hourly compensation.  Once the company's financial situation returns near or to equilibrium and business resume, there won’t be any need to hire and train new staffers.

New call-to-actionWhat are the Disadvantages of Furloughs?

There are a couple of downsides to furloughs worth mentioning.  For one, there is a chance that temporarily sidelining your employees will spur them to look for work elsewhere.  Furthermore, the savings of a furlough are only temporary, providing a financial lifeline for a week or two while the business gets its numbers right or other matters straightened out.

There is also the challenge of reopening the business after a brief closure and work interruption during a furlough.  We would be remiss not to mention the fact that employees will be a bit depressed after learning of the furlough and also after returning as there is a greater sense of workplace instability.

Carefully Consider the Pros and Cons of a Potential Furlough

f you own or manage a business, it is certainly in your interest to be aware of the opportunity to furlough employees.  Though you might not ever resort to a furlough, keeping it as a last resort option in your back pocket will provide invaluable peace of mind for yourself as well as the rest of your hardworking team.  Carefully consider the positives and negatives of a potential furlough as detailed above, perform your due diligence including an analysis of alternatives and you will be able to make a well-informed decision.

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