How to Make Furloughs More Humane

How to Make Furloughs More Humane

by Sandra J. Sucher and Shalene Gupta - April 24, 2020

Furloughs are often a much better alternative to layoffs for both companies and employees. However, until Covid-19, they were infrequently used in the U.S. During the Great Recession only 0.5% of the U.S. workforce participated in furloughs, while one in five workers experienced a layoff. Today, in the most uncertain time any of us have ever known, many companies, including Tesla, GAP, Macy’s, and Marriott, are turning to furloughs, creating a road to return when there is once again work to do.

Furloughs enable companies to reduce staffing costs while sidestepping layoffs, and are especially helpful during times like these, when many industries are at a near stand-still. Furloughed employees either work a schedule of reduced hours, or, as is more common now, are put on leaves that can last as long as the company needs. Most furloughed employees receive no pay from the company, but companies generally continue covering health insurance. Employees can draw unemployment benefits during their furlough and can also work for other companies. The major benefit of furloughs to employees is that they have a job to return to, while companies don’t have to go through the painful and expensive process of rehiring and training new employees and losing talent that they’ve spent years cultivating.

However, questions about implementation abound. Sandra has spent 10 years researching best practices for layoffs and furloughs, and has distilled her research into some important points managers should keep in mind when considering furloughs.

Before Implementing Furloughs

The first is step is to make sure furloughs are the right decision. Furloughs are best used as a worker-retention strategy in the face of temporary financial difficulties (like recessions and pandemics). However, if your company is dealing with permanent changes, such as decreased demand due to advancing technology, or new strategies that require employees with entirely different skills, a furlough will only delay the inevitable layoff.

Second, managers need to carefully consider the types of employees that will receive furloughs. Part-time, temporary, or contract employees may not be eligible for unemployment benefits while on furlough, and the administrative costs of furloughing them may outweigh any potential savings. Meanwhile, the risk of losing star talent or the cost of having employees with specialized knowledge stop working may also outweigh the savings. When Honeywell implemented furloughs during the Great Recession, it exempted engineers on high-priority new product development projects and customer-facing employees. CEO Dave Cote also refused furlough requests from senior leaders who volunteered in solidarity with their employees, on the grounds that he needed them at work. Instead, to share the pain, many leaders decided to follow Cote’s example and forego their bonuses.

Third, furloughs come with administrative costs that vary depending on the local laws. Some governments require that the company contribute to a worker’s pay, although the U.S. does not. Most companies will pay health insurance and this should be a best practice - especially in a pandemic. However, insurance plans place limits on how long furloughs can last - currently a year according to the U.S. Office of Personnel Management. Meanwhile, different states may have different definitions of what constitutes work and may require companies to confiscate work laptops and cell phones. Employers will need to do their homework on the legal requirement - in and of itself, another administrative cost.

Fourth, managers should evaluate the perceived fairness of the furlough. Layoffs often target underperforming employees, but furloughs can affect a greater proportion of the workforce, which may strike some employees as unfair. To alleviate this, managers should consider spreading the pain, by rotating departments or divisions so employees are not forgoing their paychecks for several weeks at a time, or imposing an overall reduction of hours across the board, or using other cost-savings measures such as salary cuts for senior leaders. At Honeywell, managers found that the definition of fairness evolved depending on the changing needs of the company and employees.

Finally, employers doing furloughs should provide as much advance notice as possible. Research has shown that employees are most likely to trust their managers when they exercise information fairness. This involves communicating about what you intend to do, why you have chosen that strategy, and how employees will be affected. After the general communication, managers should meet with their own employees - Zoom or a phone call counts! - to give employees a chance to raise concerns and questions. Managers should also take care to collect the best contact information for employees, especially if the furlough means those employees will no longer have access to email.

During the Furlough

While employees don’t work during a furlough, that doesn’t mean they stop existing. Managers should be actively thinking about how to have a “good” furlough: one that is fair and boosts morale as much as possible.

First, if employees are not getting paid, there should be absolutely no pressure for them to do work. When Fermilabs used furloughs in 2007, in order to drive this message home, the director left his monthly column in the company newsletter blank.

Second, a frequent and transparent communication strategy is the key for boosting morale. Adrienne Fox, the former managing editor of HR Magazine, asked furloughed employees for their thoughts on making furloughs easier. They recommended early and frequent communication, even if a company doesn’t have all the answers. It’s more reassuring to hear that leaders don’t have an answer but do have the issue top of mind, then it is to hear obfuscation or worse, nothing at all. To this point, companies should establish a single, trusted source - preferably someone in a position of authority - to communicate about the pandemic and the company’s response. Next they should communicate frequently - weekly or even daily - and always at the same time of day so employees know they are still valued. If employees aren’t allowed to use company email during their furlough, make sure you’re sending to an alternate email account or posting on an accessible webpage. Additionally, companies should create a process where employees can communicate questions and concerns and receive answers from someone with authority and knowledge. Finally, the communication should be relevant to employees and it need not be lengthy. In less than a page, the company can offer guidance on Covid policies, filing for unemployment, or even job postings for temporary work, updates on furlough decision-making and general company news, and communication links for employees to submit and receive answers to their questions.

Managers should continue to monitor the furloughs to ensure they spread the pain as fairly as possible. In 2009, Wisconsin-based Badger Mining allowed employees to choose their furlough days so they could schedule around childcare and other plans.

After the Furlough

But it’s important to understand that you can’t erase the inevitable pain that furloughs cause. (Dave Cote warned, that morale started off high at Honeywell, but as the furloughs went on, resentment grew.) Living on unemployment benefits can be difficult, and in this pandemic, the replacement jobs available are fraught with the risk of exposure to Covid. Employees who return once the furlough is over may have complex feelings. After Fermilab’s furloughs ended, it conducted focus groups and found that seven months later, employees still felt uneasy and morale had suffered. Employees worried about the future of the lab.

Managers should not assume that they are in the clear once a furlough has ended. Employees will still need frequent and transparent communication - a rational basis for hope - about the state of affairs and recovery plans along with reassurance that the future is bright with an explanation of how they all fit into that future.

While furloughs can be an excellent strategy - just ask Honeywell, whose stock returns were 279% higher than the competition’s after the Great Recession ended - like all strategies, it requires thoughtful implementation for both employees and employers to reap the maximum benefits while undergoing minimal damage. Furloughs have become a sudden - and welcome - feature of this pandemic world, allowing companies to maintain connections with their employees, cut costs while still providing employees benefits, and create a path to a seamless recovery.

Sandra J. Sucher is the Joseph L. Rice, III, Faculty Fellow and a professor of management practice at Harvard Business School.

Shalene Gupta is a research associate at Harvard Business School.