Network News

X My Profile
View More Activity
2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

The Furlough Weekend: An Alternative To Layoffs?

Would you like 10 more three-day weekends per year?

Would you still take them if the third day was unpaid -- and if your alternative was getting laid off?

One of the biggest costs of any employer is payroll. In the ongoing economic crisis, employers are looking for any way to cut costs and many are resorting to layoffs.

But many others — from an RV-maker in Oregon to the Gannett newspaper chain in McLean to the state government of California — have turned to involuntary furloughs, or unpaid days off, as a way of cutting payroll costs while avoiding painful layoffs.

That got us here at The Ticker thinking: What if employees facing furlough could choose their furlough days?

Call it the Furlough Weekend.

Here’s how the plan would work:

-- It would be open to all public- and private-sector, union and non-union employees in the U.S., pending approval from their supervisors.

-- Eligible employees would either chose from a menu of furlough options or negotiate the number of furlough days they want for the year against the needs of their employer. Ted the banker wants to take 10 days; his boss decides he can take only six days. Or Ted only wants six days but his boss wants him to take 12. They work it out and schedule the days, allowing the employer to plan ahead for the missed work.

-- The employee would receive no pay for their furlough days but their benefits — healthcare, retirement and pension contributions and so on — would continue uninterrupted. Starting and stopping these benefits mulitple times would be like trying to do the same to an aircraft carrier.

What are the economic benefits of the Furlough Weekend?

Employers could save billions in salary expense — savings that could prevent layoffs and free up capital for growth or to aid the company’s balance sheet. Companies that make layoffs typically see a quick spike in stock price but often suffer longer-term image problems that hurt their value, as they become seen as unhealthy.

For workers, there could be numerous benefits. And they wouldn’t necessarily have to give up their earning power.

Workers could use their Furlough Weekends to add a second income. They could turn a hobby into a business or start up and maintain a largely self-perpetuating business, such as property management or any number of online businesses.

Non-economic, but nevertheless valuable, employee benefits include having extra days to get things done — and on a week day, when businesses are open. Employees could spend more time with family and take more weekend getaways.

Perhaps the greatest non-tangible benefit, however, would be giving at-risk employees a measure of control over their fate. If an employee is laid off or furloughed, the employer sets the terms. The employee feels powerless. The Furlough Weekend would go a ways toward changing that.

We did a little back-of-the-envelope calcuation to estimate the blue-sky cost savings to employers. This admittedly is a gross calculation, but it gives you an idea of the potential savings.

In 2008, the total payroll for all U.S. employees was $6.54 trillion, according to the Department of Commerce’s Bureau of Economic Analysis. (That figure includes payroll only, not the employer cost of pensions, healthcare and other benefits.)

People are paid to work about 264 days per year.

Let’s say you take 10 Furlough Weekends per year, taking 10 days off, or the equivalent of two work weeks. That means you’d be paid for 254 days per year, a 4 percent reduction.

Now, let’s assume each one of the 154 million full-time employees in the U.S. takes 10 Furlough Weekends per year. Of course, that can’t happen for a number of reasons — some workers are too indispensable, some are paid on contract rather than on an hourly rate and so on. But let’s just say that for argument’s sake.

In that case, the total payroll savings in 2008 would have been a whopping $261 billion.
Let’s say only half of all American workers can or do take the Furlough Weekends. That reduces our savings to $131 billion, but that figure would rise if more workers could participate.

Is it worth it?

Considering the savings would be spread across all of America’s thousands of employers, it would depend. If it cost an employer more to implement the Furlough Weekend than it would save, the answer is clearly no.

Otherwise, why not try it?

The Ticker called Laura Sejen, global director of compensation for Watson Wyatt, a specialist in employee benefits that helps companies with their payrolls and workforces.

We explained the Furlough Weekend to Sejen and asked: Is our idea totally crazy?

After laughing, she said, “Only medium crazy.”

Sejen points out that offering furloughs in some professions — such as police work — could have unintended harmful consequences, like a rise in crime.

“But it could work in a managed kind of way,” she said.

Sejen suggested that employers could offer a menu of Furlough Weekend options. Say, Option A gives the employee the first 10 Fridays of the year off; Option B gives them five Fridays and five Mondays and so on.

“Then, the people in Human Relations and payroll are not looking at a thousand different permutations” as each employee seeks to customize their Furlough Weekends.

Just yesterday, Richmond-based newspaper publisher Media General announced that its employees must take 10 unpaid furlough days by the end of September.

But the company’s headquarters is leaving it up to the management of its individual properties, such as the Richmond Times-Dispatch, to negotiate with its employees when those days are taken, giving the employee some choice in the matter.

Or, as Sejen said: “We’re having ice cream. You get to choose vanilla or chocolate, but it’s ice cream.”

Sejen said that voluntary furloughs, like our Furlough Weekend, would be preferable to layoffs in one key area: employee morale. Layoffs kill morale, she said, and that hurts productivity and brand image.

And more layoffs are coming, Sejen said, if the economic crisis continues and alternatives are not found.

In an October survey taken by Watson Wyatt, 45 percent of employers contacted said they had either made layoffs or anticipated them in the next 12 months. In a second survey taken in December, that number had jumped to 62 percent.

Sejen pointed out that Furlough Weekends could be inherently unfair to lower-earners.

In other words, they could work well “if you’re an established professional with a nice salary and you’re not living from paycheck to paycheck,” she said. “But if you’re like half of the population who’s earning $50,000 or less and is trying to house, feed and clothe a family of four,” losing several days of pay per year might not be an option, she said.

Fair enough.

But that brings us back to our original point. Ten days of lost pay per year is still better than getting laid off. In times like these, that's a no-brainer.

-- Frank Ahrens
The Ticker is Twittering!

By Frank Ahrens  |  February 19, 2009; 11:46 AM ET
Categories:  The Ticker  | Tags: contraction, furlough, layoffs, recession, unemployment  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Markets Open Slightly Up
Next: T. Boone Pickens Loses $1.25 Billion

Comments

Layoffs are better for companies, though.
For example, let's say Joe in your department is laid off. Now, of course, you are happy to do Joe's job as well as your own, since you don't want to be laid off, too.
When the economy picks up, do you think they'll hire someone to do Joe's job? Or will they just let you continue to do it?
It's called increasing productivity.....

Posted by: news5 | February 19, 2009 1:00 PM | Report abuse

At a state university, my friend was asked to take a furlough. After another employee left a "I can't answer the phone because I've been furloughed today" message, management changed course and asked employees to work the same number of hour but take the equivalent pay cut.

This is the by-product of deflation: falling prices and falling wages.

Posted by: DesertLeap | February 19, 2009 2:29 PM | Report abuse

My company is having us take a week off without pay - which is smarter than layoffs - (1) it allows people to keep their current pay rate so that if/when things pick up, people will not have to be at a depressed wage level for two or three years; (2) it keeps the work teams in place - they don't want to lose some of the specialized skils; and (3) the people that lose their jobs won't be buying any of our company's product - and the ones left behind - in fear of their jobs, won't be buying much either - so they are preserving confidence in the economy.

Posted by: wtrimble1 | February 19, 2009 3:33 PM | Report abuse

news5 makes a point: why do you think American productivity's been increasing until most recently? More's being done by fewer people.

However, the US government seems to chug right along taking every holiday on the calendar, plus a few they made up (i.e., Washington's Birthday).

Parenthetically, whatever happened to all those "non-essential personnel" who were furloughed the last time the government shut down? Are they all back at work? Are they all "essential" now?

I think salary reductions, wage and bonus freezes, forced furloughs and staff reductions should all be on the table. Every company is different.

Posted by: srpinpgh | February 19, 2009 4:08 PM | Report abuse

If the worker is not expected to make up the work from the furlough day, then the worker isn't hurt.

However, the company, if it is not an assembly-line operation, will expect that all work be done by the employees AS IF NO FURLOUGHS were in effect.

If the figures on salary are correct, the company gets a 4% reduction in salary costs, but gets the same amount of work performed - same as hiring about 3% more workers, but (in effect) at negative cost to the company.

Furlough days will ONLY work in an assembly-line operation, PERIOD.

Posted by: critter69 | February 19, 2009 4:35 PM | Report abuse

srpinpgh,

When a government agency labels a person 'non-essential', it means that they are not directly involved in the emergency maintenance of the building and/or equipment of the agency. Those employees whose presence is required for the emergency maintenance of the building and/or equipment of the agency are termed emergency-essential employees. Their jobs involve making sure any pieces of equipment that might malfunctions don't cause major damage to the building or other equipment; broken pipes, broken windows, etc. are repaired temporarily or permanently so that the building isn't damaged (or damaged any further), etc. Emergency-essential employees also include those whose IMMEDIATE presence is required, such as the dispatcher for emergency calls at the police station, fire house, or water department, etc.; the air traffic controller at the airport or regional air traffic control center; the guards at the gates of guarded facilities (the White House, Congress, CIA, NSA, etc.); the guards at prisons (federal, state and local); doctors and nurses at hospitals, etc.

It does NOT mean the employees are NOT essential to the operation of the agency. It means that those employees services are needed, but not in an instant, on that very day. For example, the person(s) who writes the computer code (for possibly issuing your tax refund check?); the person(s) who writes the regulations; the person who works on the loading dock, receiving shipments of goods into the building; the cafeteria workers; etc.

Posted by: critter69 | February 19, 2009 5:04 PM | Report abuse

The comments to this entry are closed.

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company