Reduce your labour costs
Mandatory furloughs might not be popular but they
sure beat layoffs:
Toddi Gutner
Making tough choices is a big part of running any business,
especially during an economic downturn. And no decision is harder to
face than that of laying off employees.
There can be a somewhat pain-free solution, though: implementing
mandatory days off without pay (also known as furloughs).
That's what D.D. Ford Construction of Santa Barbara, California, did
in response to the stock market tanking and the housing market
collapsing in the fall of 2008.
President Doug Ford, charged with significantly cutting his monthly
expenses, was preparing for a round of layoffs when his human resources
manager suggested the furlough alternative.
Ford went forward with the plan, and it allowed him to temporarily,
but quickly, cut $60,000 off his monthly payroll while avoiding the
permanent pain of layoffs and costs of rehiring and retraining.
"We were also able to keep the employees' benefits in place," says
Ford. In addition, some states, like California, enable employees to
collect unemployment for those days they are furloughed. And how did the
employees respond? "They all decided that they didn't want anyone to be
let go and wanted to share together in the burden of getting the company
overhead down," says Ford. "It was great for team-building."
While the benefits of implementing furloughs are many, it's essential
to understand the complex legal issues such a process entails.
The rules vary for hourly-wage employees versus salaried
professionals. With hourly workers, it's simple: Just cut back their
hours.
For salaried, exempt employees, however, it's much more complicated.
Under law, if salaried employees work any time during a given week, they
are entitled to the salary for the week unless they choose to work less.
And if a salaried employee works at all on a given day, he or she is
entitled to salary for that day.
"You will want to think through the end game before you pull the
trigger on this kind of program," says Max Caldwell, managing principal
and global leader of the workforce effectiveness practice at Towers
Perrin. You'll also want to implement the process in a way that doesn't
impede employee morale. Here is what to consider:
Consider your workflow. Labour laws require "that employers ask
salaried employees to take off specific weeks rather than a day a week
for several months," says Doug Christensen, a partner in Dorsey and
Whitney's labor law practice in Minneapolis.
So if your work flow is better suited to allowing employees one day
off each week over a specific period of time, then you will need to
implement a 20 percent salary reduction to get to a 32-hour workweek.
Note, however, that if you do salary reductions, says Christensen, your
employees need to make a minimum of $450 a week.
That means if someone is earning $500 a week and you cut his workweek
one day, then his salary falls to $400.
"That wouldn't meet the labor law requirements," says Christensen.
Draft an agreement. Give your furloughed salaried employees explicit
instructions not to work on those days off. "Do it in writing to use as
a defense and prove down the road that you didn't want them to work,"
says Christensen. Of course, it gets a bit tricky with smartphones and
computers, but an agreement will help keep the instructions clear.
Try to give options. To help employees maintain their sense of
control, try to let them choose those days they take off.
At D.D. Ford Construction, all the employees in one department took
the same number of days off, either one or two, and also decided which
days they would be.
"The employees felt that had a certain amount of control as well,"
says Ford, who adds that some employees are back to full-time.
Communicate, a lot. Throughout the entire process from informing the
employees of the need to cut costs to explaining the benefits process
make sure you give your employees as much information as you can.
You might want to run seminars to discuss the impact on benefits, if
any, and to let them know the process is temporary and how long it might
last.
Toddi is an award-winning journalist, writer and editor and currently
is a contributing writer covering career management issues for The Wall
Street Journal.enterprenuer.com |