A furlough is a temporary unpaid leave of absence employees are forced by their organization to take.
Furloughs have a terrible impact on an organization’s morale. Employees lose faith in the competence and goodwill of leadership. Perceived competence takes a hit because employees see that the organization must resort to drastic measures to keep it solvent. Perceived goodwill takes a hit because the perceived incompetence of leadership has drastic negative effects on employees.
Turnover increases during furloughs. This appears like it makes things easier on the organization, but it is a short-term benefit with a long-term cost. Furlough turnover is disproportionate to high-performing employees. After all, they’re the ones that are most likely to stolen by other organizations.
When an organization has to cut back on it’s workforce, it prefers to cut the worst performers. However, a furlough drives away the best performers. This is one reason why an organization would opt for a reduction in force over furloughs.
While implementing furloughs is certainly a monumental action by an organization’s leadership, it is taken in an effort to spare employees from worse fates. In government, furloughs generally starts as a few days per month. The pain is spread over the organization so that the percentage of employees who would have been laid off under a reduction in force can keep their jobs -- at least for the time being.
Say an organization furloughs all employees for two days per month. For ease of the math, say there are 20 working days in a month. It varies, but February usually has 20 working days. Other months have a few more. In this example, all employees work 10% less and are accordingly paid 10% less. This means that the furlough saved roughly 10% of the organization’s employees from being laid off that month.
If an initial furlough plan does not work, organizations must increase the number of days off or must resort to even more drastic measures. In the private and nonprofit sectors, this may mean layoffs or shutting down the operation. In government, unsuccessful furloughs may mean layoffs or reductions in service. Examples of reductions in service include reduced hours of operation, time delays and quality degradation.
Furloughs of government employees usually happen in tough economic times. Tax revenues go down, and demand for government services goes up. When tax revenues go down, governments would have a hard time keeping up with the demand of good economic times, but the increased demand puts even more strain on government, particularly in social services.