Tuesday, January 27, 2009
By Eve Tahmincioglu
So you’re thinking the worst is now behind you because you survived a round of layoffs, accepted a pay cut and are doing the job of two people.
Think again. There’s a new cost-cutting measure exploding among employers — furloughs.
Many companies, universities and governments across the country are forcing their workers to take a day or two off a month, or to take a week off during a given quarter.
There’s one catch — no pay.
Earlier this month, newspaper chain Gannett Company announced it would force all its workers to take one week off during the first quarter without pay. And a week before that, California Gov. Arnold Schwarzenegger ordered state offices to close two Fridays a month, meaning state workers would end up with smaller paychecks.
Even President Barack Obama alluded to the growing use of furloughs in his inauguration speech when he said, "the selflessness of workers who would rather cut their hours than see a friend lose their job." But in many cases it's a company forcing the unpaid time off rather than selfless workers looking to cut their paychecks.
Increasing reliance on furloughs
Furloughs have been around for years. In the past, they were mainly used in manufacturing during temporary plant closures. Now, organizations in various sectors appear to be rediscovering furloughs — and are using them in unprecedented numbers.
But firms that use furloughs on a regular basis to prop up the bottom line are not only risking low morale among the rank and file: They also walk a tight rope when it comes to wage and hour laws. While hourly workers can be furloughed as often as managers at private employers want, salaried employees that are not entitled to overtime cannot be furloughed repeatedly, says Loren Smith, a spokesman for the U.S. Department of Labor.
Frequent deductions in pay create a situation where you are treating salaried workers like hourly workers, he says. “Employees can lose their exempt status and might be entitled to overtime in the future.”
Despite such restrictions, this recession has companies increasingly using furloughs as a secret weapon. Last year, the number of employees who did not work their full work week because of their employer's economic conditions reached levels not seen in any of the nation’s previous downturns dating back to the 1955, the earliest numbers available from the Labor Department.
In December, 6 million workers were classified as “working part time for economic reasons because of slack work or business conditions,” nearly double the 3.1 million figure during the same month in 2007, the first month of the recession.
“The use of furloughs has become the new thing,” says John Stapleford, senior economist at Moody’s Economy.com.
While Stapleford says furloughs have been utilized during past downturns, the numbers during this recession are unheard of: “I don’t remember them ever before being used like this.”
He believes that many companies are hedging their bets that the economy will turn around soon, so they don’t want to lay off too many workers and then risk having to spend big bucks to rehire and train new employees.
Firms can also keep their unemployment insurance rates down if they give workers unpaid leave for a few days, he adds, because most employees won’t be eligible for jobless benefits.
His prediction: More and more workers should expect unpaid leave in their futures.