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Crisis - A look into Furlough

How to Better Manage Furloughs

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               In the face of COVID-19, organizations have faced unprecedented levels of disruptions, whether at the supply chain or operational level. This has led many to take drastic steps to reign over major changes to sales and expenditures. From an expenses perspective, wages and benefits are often a major part of the pie. To balance operational disruptions, many organizations have terminated, laid off or furloughed workers at extraordinary levels.

What is Furlough?

               Furlough is a term used to define a temporary leave of absence from work. Traditionally, employers start the process of furlough, however, employees also have the option to do so given various reasons that will be discussed later in this article. Furlough is often seen as the middle option between full-employment and termination.

Why is Furlough used?

               Employers and employees may begin a furlough process, albeit for a variety of different reason. From the perspective of employers, organizations may use furlough to help diminish the financial burden that salaries and benefits have in the operations when internal or external disruptions occur. The practice is often preferred when there is a reasonable expectation that the business intends to rehire the professional once activities normalize. It helps organizations to keep the person in the system (albeit without pay) while potentially limiting administrative costs such as hiring and training.

               From the employee’s perspective, they may choose to begin a furlough process as a form of leave of absence with the potential to return to the organization once personal activities have been accomplished. Depending on the contractual obligations between the employee and the organization, one is still able to enjoy some benefits provided by the company while furloughed, despite not being paid. Further, it can help the employee feel less concerned over the ramifications of taking a leave and having to search for a job on their return.

Examples of Furlough

Employer

               The United States government has furloughed non-essential employees’ multiple times throughout its history, mainly due to the failure of passing funding legislation. Shutdowns have occurred in 1980, 1981, 1984, 1986, 1990, 1995, 1996, 2013, 2018, and 2019. For the most part, these events were short, with the longest lasting 35 days in between 2018-2019.

               COVID-19 has slowed or halted market operations around the world, leading to major impacts in a variety of industries, with record numbers of furloughed staff. For example, airlines companies such as Scandinavian Airlines furloughed over 90% of its workforce. GAP Inc, a major clothing retailer furloughed over 80,000 store associates. Bombardier Inc, a Canadian manufacturer of planes and rail furloughed over 12,400 employees.

               Throughout history, companies in areas such as oil & gas and manufacturing have had cyclical periods of furloughs whenever market conditions such as recessions or large oscillations in the price of goods and services occurred. It has served as a middle ground solution that can offset the costs associated with recruiting and training new personnel – a favorable option for a company that already finds itself in a difficult situation.

Employee

               On the employee side, furlough can originate from different reasons, but a mutual agreement between both parties is still required – especially if there’s an expectation that working relations will resume after the said period. Examples can range from:

  • An employee has a family emergency that requires time off from work duty. The employee reaches an agreement with management to be furloughed for 30 days to resolve the matter.
  • A worker has a health emergency that requires leave of absence. Unfortunately, he does not have any more paid sick leave, so both parties agree that the employee goes on furlough for the extent of his medical circumstances.
  • A laborer decides to take time off to travel, yet they would still like to keep a partial working relationship with their employer. Both parties agree to a furlough period of 3 months to cover for the time the laborer has requested for.

Word of Caution

               Both parties should not expect the other to have a legal obligation to fulfil their part of the bargain unless specific laws exist that requires full or partial obligations at the federal, provincial/state, or regional level. For most intents and purposes, it is an agreement that both parties are comfortable with each other and would prefer to keep relations at the time in which the furlough was agreed (without pay). An employee may decide to follow a different work path in the same way that the organization may close, downscale, move on or fully replace the employee throughout the furlough period. Please note that this article does not cover all the legal ramifications related to being furloughed. Every jurisdiction and company have their own specific laws and policies associated with the practice and individuals should seek to understand the legal ramifications according to their country, province/ state, city, and company.

How can organizations better manage furloughs?

Furloughed Circumstances

               Organizations should understand the options available to them, their legal obligations and the potential ramifications that their activities may entail. Furlough can make sense in cases where market conditions made the production of organizational materials unfeasible for the short term and that there is a reasonable expectation that it will be back in operations soon. Salaried and hourly pay may also have an impact on the organization’s decision depending on governmental legislations.

Manage Furlough Through Built-in Solution

               Make use of solutions such as GPetrium’s Furlough & Operational Excellence Tool to support the day-to-day communication and operations as it pertains to furlough. Whether it is managing expectations within and outside the organization or building insights and strategy to determine where and when to get the furloughed employee back and fully operational.

Have Resources Available to Facilitate Worker’s Transition

               In most cases, employment is the single most important source of income to an employee. When furlough occurs, all of the employee and their family’s activities can be impacted. To help smooth the process, employers should strive to provide helpful resources that can potentially assist employees to navigate the matter such as contact information for governmental support, a fact sheet about employee rights, insights that can provide advice on how to best cope with furlough and productive practices. It is preferable to have furlough and layoff materials prepared and available beforehand since the organization will likely be scrambling for resources and time during an emergency.

    Be as Transparent as Possible

                   At times where furloughing is required, both the targeted and remaining employees can be filled with a variety of emotions. It can range from thinking “Am I next” to “Will I ever get that job back?”, and so many in between. To ensure that the furlough process is as smooth as possible and that it does not create narratives that can lead the organization into a death spiral, leadership needs to manage both the furloughed group and the remaining employees transparently.

    Furloughed – Provide clarity where possible by giving reasons to the decision, reasonable expectation of when the organization might reach out to get the employee back in full throttle.

    Remaining Employees – Shed light on the major activities that matter to the employees. Provide some level of comfort regarding employment safety where possible, and general reasons that led the company to reach a certain decision.

    Maintain a Line of Communication

    Furloughed – Provide the furloughed employee with a line of communication that can be used by both parties. (email or telephone) This will help facilitate the management of expectations, time, and rehiring.

    Remaining Employees – Leadership should consistently deliver updates, helping employees navigate their day-to-day activities. Provide employees with a point of contact to help manage questions or concerns that may arise in the coming weeks after a major furlough or layoff occurred.

    Know your Resource Limitations

                   Periods of furlough can be challenging to all parties, that includes the organization, ownership and leadership groups. Therefore, it is essential that the organization becomes well aware of its resource availability and limitation and work within it to ensure that essential services remain fully operational and that nonessential services are available from a prioritization stand-point. Taking too long or acting too fast can bring a myriad of issues and should be accounted for in the process.

    Conclusion

                   Life can unfold surprisingly difficult challenges that have different outcomes for different individuals and organization. It is important to meet such situations with empathy and compassion whether through furloughs or layoffs. Being objective, compassionate, and transparent (whenever possible) is a good starting point that can bring a human touch to this often-difficult situation.

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