What is a Furlough?
A furlough is when employees are given a leave of absence from work for which the employee is not paid. A worker who is on furlough remains an employee of the company where they work. They receive neither a salary nor a reduced salary. Putting workers on furlough allows distressed businesses to reduce their costs.
Businesses operating in industries that are particularly exposed to the business cycle tend to reduce the size of their workforce during a recession. Furloughing workers allows such businesses to temporarily reduce their wage costs until the recession is over. However, if a business operates in an industry that is undergoing a systemic change that is likely to be irreversible, then furloughing workers is often just a means of delaying the inevitable job cuts.
- Furlough is usually a leave of absence from work for which the employee is not paid.
- Although no salary is paid for the period, a furloughed employee still holds on to their job.
- It is different from being laid off since the staff on furlough is still technically employed.
Workers on Furlough
It is difficult to quantitatively assess the impact on workers of being put on furlough. While it could be argued that being put on furlough is better than being permanently laid off, since the furlough is more likely to be temporary, there are several important factors to consider. For example, a furloughed worker might not be able to access public unemployment assistance programs that are available to unemployed workers.
In addition, government policies that incentivize businesses to furlough workers (such as tax breaks and business loans) instead of firing them can often distort unemployment figures since furloughed workers count as employed.
While the economic repercussion of being furloughed is understandable, it comes with a significant emotional cost, too. An employee who suffers such a fate looks at a grim and uncertain future with no concrete assurance of being reinstated back to work.
Impact on Workers
Since regular employment provides financial security and also a routine, furloughed workers are socially pained and at times feel excluded. There is also a loss of status that is felt at many levels, which affects their emotional wellbeing. There is a working bond with the employer, and any removal from that kind of regular contact creates feelings of uncertainty and anxiety.
Productivity is hampered in the long term, and once such staff returns to normal work, there might be a negative impact on his or her output.
On the positive side, many found that being furloughed provided them the much-needed time and opportunity they needed from life. It gave them new perspectives and allowed many to spend quality time with their family members.
Post the Covid-19 pandemic and economic turmoil worldwide, a few new insights can be derived. Experts are of the opinion that not all employees need to be furloughed during difficult times or business loss. Practically speaking, most employers will not be able to place their entire workforce on furlough leave.
Certain critical functions are essential, like finance and accounting, IT and system support, etc. However, it is a challenge for employers to decide on who must continue to work normally and who should be placed on furlough leave, especially if the salary differences are negligible.
Here, essential business operations must be given priority. To avoid discrimination, the selection process needs to be fair, equal, and transparent to all involved; otherwise, it will create dissension among staff.
- Adequate numbers of staff must be kept on hand to ensure there is coverage for all essential operations when a company decides to furlough much of its workforce.
- There may be some staff with child care or other caring needs, and placing them on a furlough leave might help them.
- Staff rotation might be considered allowing alternate periods of furlough and work.
CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)® certification program, designed to transform anyone into a world-class financial analyst.
In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful: