Money and Main Street

America goes on furlough

Summer is prime time for 'temporary layoffs,' and they're happening in some unexpected places

By Beth Kowitt, reporter

NEW YORK (Fortune) -- Welcome to the summer of the furlough. Manufacturing workers have long suffered from these "temporary layoffs," but the white-collar world is feeling them now, too: During this recession, everyone from universities to technology companies are using furloughs as a way to cut payroll without further trimming their staffs.

And while furloughs are already underway around the nation, human resources specialists say that required unpaid days off are only going to heat up as we head into the summer months, when employees are more amenable to time off -- albeit unpaid.

"Companies have done the huge surgery in terms of offering reductions in forced and involuntary ways," says Fred Crandall with consulting firm Watson Wyatt. Now they're using furloughs as microsurgery, and trying to be as minimally invasive as they can.

The businesses implementing these mandatory unpaid days of leave are as varied and widespread as the types of furloughs they're undertaking. At the New York Jets, employees on the business side must take off two weeks out of a fixed four-week period during the summer. The furloughs affect about 62 people and will reduce the department's payroll by about 4%.

In California, facing a budget crisis, Governor Arnold Schwarzenegger first implemented a furlough in February requiring state employees to take off the first and third Fridays of every month. It was later changed so they could select any two unpaid days off a month.

At power management company Eaton, employees in the United States, Canada, and Puerto Rico must take a week of unpaid leave in each quarter of this year - a move that came on top of a recent elimination of 8,600 positions.

Furloughs are also not without creativity: The University of Maryland is taking a scaled approach where employees with the largest salaries take off the most days. (The university's president is taking five days off.)

Harriet Cooperman, chair of the labor, employment and employee benefits group at the law firm Saul Ewing, says she's heard of companies implementing a furlough while simultaneously giving a pay raise. The effect is psychological, she says - employees get the pay raises they're due, but the company doesn't incur additional costs.

A weeklong furlough can save companies about 2% of payroll, says Paul Schafer with Hewitt. A recent Hewitt survey of human resources executives at 518 U.S. companies found that, as of the start of April, 44% had either already undertaken or were considering implementing shortened workweeks or involuntary furloughs at their organizations.

Furloughs are becoming increasingly popular, in large part because companies can implement them quickly and avoid cutting talent they would later need to rehire. In the past, companies would simply conduct layoffs and move on. But with many businesses already operating with lean staffs, further reductions would only impede workflow.

"During the last big wave of layoffs in the '90s, there was what I'll call a lot of fat," says Cooperman. Companies were overstaffed, but now she says "we're lean and mean, but we still have to do something to cut costs."

The shift toward furloughs also reflects the tone of this recession. For employers, cutting costs through unpaid mandatory vacations is a way to manage the uncertainty of how long this recession will last. Furloughs can help them hedge their bets against the big question mark of what's coming next.

"No one knows where the bottom is," says Crandall with Watson Wyatt, "so companies have taken successive bites out of the apple."

Employees are feeling the uncertainty as well. In previous downturns, workers had the sense that layoffs were a passing condition, says Bob Bruno, a professor at the University of Illinois specializing in labor and employment relations.

"Now there's an increased fear from workers that the job might entirely go away," he says. "They feel like they have less power, and they're willing to accept a furlough."

And though reduced pay this summer might mean no expensive vacation, some businesses have used furloughs as a marketing opportunity: The Rubicon Brewing Company in Sacramento was offering a 10% discount to state workers and their parties during "Furlough Fridays." And CoCo Key Water Resort is offering a special discounted package for furloughed workers and their families at two of its Ohio locations.

Even some workers who have been furloughed are trying their best to make the most of it. After media company Gannett implemented its second one-week furlough this year, employees started Twittering about possibilities for their newfound downtime. The result was furloughhouseswap.com, a site where furloughed workers can exchange homes to save on hotel costs.

"We want to travel, we want to take vacation, but we're not making any money," said Jodi Gersh, Gannett's content manager for social media and one of the brains behind the idea.

The ultimate goal, the site says: "Find a free place to stay on your furcation."

Are you going on furlough this summer? Tell us your plans for how you'll spend the time and send us your picture for a Fortune.com feature. Send to bkowitt@fortune.com  To top of page

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