In the past few years, furloughs have increasingly been used by organizations to reduce labor costs.
Global management consultants Hay Group’s survey of 100 companies in 2009 found more than one-third of them were using furloughs—unpaid time off—to control expenses.
It is not just companies. The National Conference of State Legislatures noted that more than half the states have resorted to furloughs. Many cities have also implemented them.
Two industrial-organizational psychology researchers, Ann Huffman of Northern Arizona University and Lori Muse of California State University at Fullerton, conducted a study to determine the impact furloughs had on employees, and more specifically, if they lead to employees intending to leave the organization.
They will be presenting their findings at the 26th Annual Conference of the Society for Industrial and Organizational Psychology, April 14-16, in Chicago.
“Furloughs are pay cuts and employees do not like them,” said Huffman. “They can range from 1 day to several weeks, and the longer the furlough the more likely employees will perceive the employer has broken a psychological contract with them.”
That’s because employees have been promised a level of pay for a certain amount of hours worked, and then are told they cannot work those hours and therefore will not receive their full pay, she said.
Huffman said organizations institute furloughs in a variety of ways. Taking the pay cut concern of employees into consideration, one employer in their study exempted lower paid workers from the furlough, requiring higher paid employees to take unpaid leaves.
Another employer in the study mandated all employees, no matter the rate of pay, be furloughed. “The perception of fairness was important to employees, and the first furlough policy was perceived as fairer than the latter. It is likely that those employees gave more thought to leaving the organization,” she said.
Often employees are expected to perform the same amount of work despite working fewer hours or days. That can create a great amount of stress and is likely to trigger a negative emotion, causing the employee to withdraw from work, said Huffman.
She concedes that although furloughed employees may think about seeking jobs elsewhere, very few actually do. “That’s because of the tight job market and, while they do not like furloughs, many consider themselves fortunate to have a job,” she explained.
Of course, that is always a major point management emphasizes when implementing furloughs: the alternative being layoffs. “Employees see furloughs as the lesser of two evils and are more agreeable to them rather than being laid off or seeing colleagues lose their jobs,” Huffman said. At the same time, workers don’t want management to keep reminding them how grateful they should be because they are still working.
Nevertheless, there is evidence that furloughs are likely to have an unfavorable effect on employees, and human resource managers and policy makers need to be aware of potential impacts when making such decisions.
The study’s results point to two main issues that lead to turnover intentions: the perception that the psychological contract between employer and employee has been broken and work overload.
However, there are some mediating factors that could ease the negative consequences of furloughs, Huffman pointed out. “In terms of psychological contract, results showed that when managers convince employees that the outcome is fair, the negative effects of the furlough are lessened,” she said.
According to Huffman, organizations might want to first try to understand what employees perceive as fair before initiating a policy.
Involving employees in the decision of how the required furlough days are determined could lead to stronger perceptions of justice, thereby reducing turnover intentions. “You need to give employees a voice, hear their concerns, and keep them informed. That shows management is trying to be fair with its furlough policy,” she said.
Another important consideration for management is the social support that employees can offer each other. “When organizations encourage and reward workers for assisting co-workers swamped by work, it can help ease the sting of furloughs. Management should support and not hinder employees’ attempts to help coworkers,” she said.
One suggestion: Develop a system in which employees with a lighter workload for a particular day notify co-workers they have the time to assist those with high workloads that day. In addition, workers with a heavy workload could list tasks for which they could use assistance.
“Management should not only initiate such a system but also reward employees who participate, including those who make themselves available to help others and those who seek the assistance,” she said.
It would also be helpful to workers if management provided more leeway on deadlines and provided more overall support to help create a collegial team-based working structure. For example, holding meetings with the objective of sharing ways to handle crunch times and financial challenges stemming from a furlough could be useful to the workplace atmosphere, Huffman said.
In addition, co-workers talking with each other about their situation can be helpful, even if they complain about the furlough. A typical conclusion is that they agree they are fortunate to still have a job.
Not all employees saw the furlough as a negative factor, said Huffman. “Some welcomed the time off saying it gave them an additional day of rest or time needed to get things done or to just spend with the family. For them the furlough helped put life and work in a different perspective,” she added.
And that’s another potential benefit of furloughs, according to Huffman, “It could be a good time to look at priorities and reset some goals and work policies. Maybe things don’t have to be done because they were always done that way. Maybe they are no longer a priority. Maybe work assignments could be streamlined.”
Although their study focused on higher education institutions, Huffman says much of what they found can be applied to private employers as well. “They face many of the same problems that public companies and organizations have and are searching for ways to reduce expenditures. Furloughs impact job attitudes, morale, and how employees regard management. Resources are needed in both private and public sectors, and they are being taken away, which can be annoying to employees. I’d say there are several similarities and that this study can be instructive to all companies, government agencies, and organizations,” she said.