Furloughs Save on More than Just Pay

August 10, 2009 (PLANSPONSOR.com) - A new study has found that 35% of employers have either turned to the use of furloughs as a cost-cutting option during the recession or have a furlough policy in place at their organization.

In addition to saving on salary costs, Business and Legal Reports (BLR) says about 60% of the more than 100 respondents to a Hay Group survey said their contributions to defined contribution plans are calculated on the reduced pay created by the furlough. The survey indicates that nearly 40% discontinue health care benefits during the furlough period.

Almost 75% reported that compensation levels are being cut commensurate with time off, and 52% said incentives would be impacted by the reduced annual pay created by the furlough.

According to BLR, Hay Group reports that respondents who had implemented furloughs said the impact on employee morale was 4.9 or “neutral” on a scale of one to 10 – indicating furloughs might be a better cost-cutting option for employers during an economic downturn instead of layoffs or salary freezes when factoring in the impact on employee morale.

Half of respondents anticipate using furloughs to cut costs for six to 12 months.