Furloughed: Still Employed, for Less

By: Bob Skladany | Source: AARP.org | June 29, 2009

As a cost-cutting means for companies to avoid layoffs, the furlough has roared on to the work scene with amazing speed. When employers have closed facilities, laidoff staff, reduced health-care benefits, and eliminated contributions to pension and savings plans, there are only a few things available to further reduce costs. It seems no industry or worker is immune to taking vacations without pay.

Q: My employer has announced that all employees will be required to take a 10-day furlough before the end of the year, and we’ve been asked to attend an information session and come with prepared questions. What do I need to ask? Richard, Vermont

A: Richard, you may find that your employer has anticipated many of your questions, but here are the questions I would want answered:

1.    Health care – How will my eligibility and premiums be affected?
2.    Benefit costs – Will my cost for other benefits be affected?
3.    Paid time off – Will my sick pay, vacation time, and personal days off be affected?
4.    Vacation time – Can I draw on my sick or vacation time during the furlough?
5.    Unemployment compensation – Will I be eligible for full or partial unemployment benefits?
6.    Furlough dates – Will we have a have a choice of furlough dates?
7.    Uniformity – Will everyone have the same number of furlough days?
8.    Workload – How will we handle the work that “backs up” during the furlough?

Depending on the number of furlough days you face and how much advance notice you’re given, you may be able to plan reductions in your living expenses or even to arrange some short-term, part-time work. If your employer is requiring furloughs, it’s a sign of trying to protect your employment—and that’s a big thing these days.

Q: I received notice from the Human Resources department that all employees will be required to take a week without pay between July 1 and Dec. 31. Can an employer just announce that we will be out of work for a full week and receive no pay? Matthew, Maryland

A: Employers may, and increasingly are, doing exactly this. About 15 percent of employers have instituted mandatory furloughs, and more are likely to follow suit. Furloughing workers is one of the ways to reduce payroll costs in hopes of avoiding additional layoffs until the economy recovers. Employers could just as easily reduce wage levels to save payroll dollars, but managers seem to judge the furlough to be somewhat more tolerable than outright pay cuts.

State governments, universities, nonprofits, and businesses alike are instituting furloughs of varying length. Some of the longest are four weeks within a calendar year or two days each month. That’s the equivalent of about an 8 to 9 percent pay cut. Others are more limited, typically one day a month or one to two weeks in a year. Unfortunately, some manufacturing companies are planning furloughs of up to several months at a time.

Some employers first ask for volunteers or allow employees to choose when to be off work. Others are mandating the duration and exact dates of furloughs to avoid conflicts with employment laws. So, in a word, yes, employers have resorted to this lesser of two evils because they are trying to hold their workforces together in hopes of better days.

Employers will have to structure their furlough policies to avoid some legal issues. For example, salaried or “exempt” employees (those who don’t qualify for overtime pay) will most likely be required to take a full week’s furlough rather than individual days. Furloughed employees are not permitted to perform any work from home—not an easy thing to do in this age of BlackBerries and unlimited e-mail access. Unionized employees covered by collective-bargaining agreements are generally protected from unilateral furloughs. Hourly paid, nonunion employees have the least protection in most cases. The only comfort is that furloughs may permit workers to keep their jobs and benefits.

Q: We’ve been told that we will be furloughed two Fridays each month at least through December of this year. My pay will decline by almost 10 percent, and I won’t be able to find a part-time job for only two days each month at a pay level anything near what I earn now. Will I qualify for state unemployment compensation? Marlene, North Carolina

A: It depends. Because unemployment laws vary by state, there is no simple answer to your question. In general, a furlough will have to be five consecutive days to meet the “waiting period” common to most states. Still, go ahead and file. Subsequent furloughs may then qualify for unemployment compensation, because you will have met the initial waiting period. If your furlough is longer than five work days, you might qualify for unemployment payments.

Most workers on short-term (one day a month, for example) furloughs will not qualify for benefits. If this is your case, it is still worth contacting your state unemployment agency. You may qualify for partial unemployment benefits based on your earnings and lost wages due to reduced work hours. Be certain to ask your employer if you will qualify for unemployment benefits before you begin your furlough; your managers should have already researched the question.

Q: I’ve worked for a state university for more than 28 years, and we have been told [we] will have 10 mandatory furlough days before Dec. 31, and perhaps additional days during 2010. I planned to work only a few more years, and this could mean a loss in my service time. I work 34 hours a week, and this could mean that my average weekly hours fall and cause me to become ineligible for health benefits. Also, with less pay, my savings and employer match will decline, and I’m only a few years from retirement. I also have a lot of accumulated sick and vacation time. What will this furlough mean for me and my employer benefits? Raphael, Texas

A: Raphael, the issue of employee benefits should be of less concern to you than the loss of pay. Most employers instituting furloughs are doing it to protect workers from permanent job loss and layoffs. A limited reduction in pay will cause short-term pain, but the loss of health benefits or reduced savings would have major and longer-term consequences.

Generally, employers continue all regular benefits for which you’re eligible, despite your furlough. This includes health care, life insurance, and disability insurance. Perhaps in anticipation of using furloughs again, employers are revising their benefits policies to ensure employees don’t lose benefit eligibility because of reduced hours. Any reduction in pay means you will be contributing less to your employer’s savings plan and therefore receiving reduced matching from your employer.

On the question of whether or not you can draw on your accrued sick or vacation time, the answer will depend on your employer’s policy. Some employers permit the use of accrued paid time off, and others won’t allow it. It’s the employer’s call. It’s also likely the furlough will not reduce your credited service time.