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.
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.
February 19, 2009; 11:46 AM ET
Categories: The Ticker | Tags: contraction, furlough, layoffs, recession, unemployment
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