Tuesday, February 24, 2009

Employers Hit Salaried Staff With Furloughs


Temporary layoffs, once confined to blue-collar workers, are hitting white-collar culture as employers dig deep to cut costs.

More companies are instituting these short-term hiatuses, called furloughs, as a humane alternative to permanent job cuts. But the spread of furloughs to new sectors and a new class of workers has created a host of issues.

"The places that are now exploring this or discussing this are not industries where it's traditional," says Joel Cutcher-Gershenfeld, dean of the School of Labor and Employment Relations at the University of Illinois, Urbana-Champaign. "I think a lot of [human-resources] offices are sort of having to figure this out. There isn't a rule book that they were given."

Furloughs have long been a way of life for workers in up-and-down industries such as construction and auto assembly. For instance, auto workers can have weekslong periods of time off due to slowing orders or retooling of factories. Now furloughs are happening in state governments and universities, publishing, technology companies and even the arts and entertainment industry.

In the past few months alone, the states of California and Maryland, Clemson University, Texas semiconductor firm Spansion, Gulfstream Aerospace, and publishing firms like Media General and Gannett have announced furloughs of professional workers.

These required unpaid periods let companies keep talented workers by reducing hours instead of cutting jobs. "The biggest issue our clients face right now is regaining momentum when business picks up, while having to hire the fewest number of new people," says Fred Crandall, a senior consultant for Watson Wyatt Worldwide Inc. in Chicago. Mr. Crandall says that's the main reason more employers are inquiring about furloughs -- especially those in the financial-services and retail sectors.

A Watson Wyatt survey of 245 large U.S. companies to be released this week found that 6% of respondents plan mandatory furloughs over the next 12 months in reaction to the economy, with 11% having already implemented one. Many are taking these actions for the first time.

That's the case for Arizona State University. Never before in its 114-year history has the school used furloughs, says Matt McElrath, chief human-resources officer for the 67,000-student college. The state-funded university's budget was cut by $88 million this fiscal year, forcing the school to furlough staff between nine and 15 days by the end of June. Mr. McElrath says the measure will save about $25 million. "Had we not done this, we would have had to lay off about 1,000 administrative personnel," he says.

However, furloughs are no guarantee against eventual layoffs or other cuts, especially in extreme budget situations.

Winnebago Industries Inc., for example, required all salaried employees to take a weeklong furlough during its second quarter, which ends this month. The move will save the company between $800,000 and $850,000, according to Chief Executive Officer Bob Olson, who will take a week off. But the Forest City, Iowa, recreational-vehicle maker hasn't ruled out repeat furloughs or even layoffs. "There are no guarantees in this recession," says Mr. Olson.

Joel Albertson, a systems analyst for Winnebago, says he has cut back on spending in response. But, he says, he isn't rattled by his company's furlough policy. "All you have to do is look at your evening news," he says. "Other companies are doing the same thing."

In some cases furloughs can feel as if they go too far, especially when they seem to be punishing the highest-paid workers. The University System of Maryland took a scaled approach, by forcing more than 20,000 employees to take up to six days off based on their salary -- a move that protects the lowest on the pay scale, but one administrators say could disenfranchise high performers.

"You've got very talented, dedicated people who work long hours and here you're asking them to basically give up several days worth of salary," says System Chancellor William Kirwan. "To ask a Nobel Prize winner to take a furlough day is not a very comfortable feeling."

While for manufacturing employees the job ends when they walk off the line, Mr. Kirwan says many professors are coming in anyway. Experts say other white-collar professionals may be inclined to do work on their furlough days to keep up with client demands or important projects.

A companywide furlough that doesn't distinguish between pay levels, though, raises the question of whether cutting from the lowest earners is fair. For this group, it "could mean the difference between eating or paying rent," Illinois professor Mr. Cutcher-Gershenfeld says.

The Port of Seattle is hoping to save $2.9 million by furloughing all of its 800 nonunion workers for two weeks. Most of them are professionals -- administrators and staff who do everything from financial analysis to executive duties. The CEO "wanted it to be fair and equitable and across the board," says spokeswoman Charla Skaggs. Further cuts will be more complicated for the port because it will have to negotiate with the union to save another $2.9 million.

For her part Ms. Skaggs, who will take her first furlough week in the beginning of March, says it's an unsettling situation, but she's relieved she still has a job. "Of all the cost-cutting measures I'm hearing other companies have to take, this one feels like it's the best of all possible difficult choices," she says.

Workers at Ashland Inc., will experience another downside to employee furlough: decreased contributions to their 401(k)s. For the first time in its history, the Covington, Ky., chemical company implemented a two-week furlough for nearly all of its salaried employees in the U.S. and Canada. While the time off won't affect employee benefits like health care, the company will contribute less to investment accounts since employees' overall salary will be lower.

Some furloughed white-collar workers say that while losing pay hurts, they are more concerned about their low-wage counterparts and are taking matters into their own hands. Clemson University is furloughing all employees for five days after its budget was cut by $38 million. In January, after faculty expressed concern for lower-wage workers, Clemson set up a relief fund that professors, alums and others could donate to. They raised $71,000 benefiting 158 employees in need of assistance, says Michelle Piekutowski, associate chief human-resources officer at the South Carolina school.

To ease the financial blow, some companies are reaching out to workers whose furloughs will qualify them for unemployment. Arizona State brought state unemployment staff to campus to help register qualified employees. Often those who take their time all at once can qualify for the benefits. At Pella, Iowa-based Pella Corp., where 2,400 employees will have one scheduled furlough week every four to six weeks, state unemployment staff were also brought in to help, said spokeswoman Kathy Krafka Harkema.

Still, in cases where furloughs amount to only a few days over a period of months, workers typically cannot apply for unemployment benefits because state benefit systems aren't set up to handle these sorts of temporary unemployment scenarios.

John Casper, 51, an order and project scheduler at Pella, got a job at a farm and home store to supplement the pay he'll lose. His wife, who also works at Pella's headquarters, took a part-time job at the local Subway. Mr. Casper, a 26-year company veteran, said he doesn't mind the furlough if it helps prevent layoffs. "I feel good about being able to help [other] people at the company," he says.

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