Alternative Cost-Cutting Strategies to a Workforce Reduction

Consider These 7 Options Before You Choose Employee Layoffs

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Your sales and profitability are not in line with your projections and goals. You’ve tried company-wide cost-cutting and streamlined work processes. Departments have participated in continuous improvement discussions and plans. But your expenses are growing increasingly out of line with the current needs of your business.

You may need to consider taking action about your largest expense, although it's also your most important asset: the people you employ. There are no easy answers, and layoffs may be inevitable. But you'll want to consider every possible option before choosing to reduce your workforce.

Before You Consider a Workforce Reduction

If you have employees with whom you have a contract, you can only implement any cost reduction measures that impact them by renegotiating the contract. This is also true when employees are represented by a union.

You'll also want to be sure to keep a record of everything. The business justification for a workforce reduction, should one become necessary, should be documented. This means that an employer can provide evidence that alternatives to layoffs were considered or tried.

If litigation results from a workforce reduction, this documentation is beneficial to show a jury that business reasons were the only consideration in the decisions about workforce reduction. It also documents your goodwill toward your employees.

So consider the following alternatives to a workforce reduction.

Institute a Hiring Freeze

One of the quickest steps to implement is to freeze hiring for all non-essential positions. This allows you to consolidate the employees you have to complete the work that is essential for serving the customers of your business.

You can strategically continue to hire in areas where skills are difficult to find and in positions that will immediately generate revenue for the business. However, areas such as research and development may need to be placed on hold for the short term. You can also hold off on filling nonessential positions that are vacated during the hiring freeze.

Freeze Salary and Benefit Increases

Another strategy for avoiding employee layoffs is to freeze salary and benefit increases. Workers won't be thrilled, but this will be viewed as less stringent by your critical employees than some of the next options. When business conditions are turbulent and unpredictable, it makes no sense to add additional costs to the permanent bottom line.

Pledge to review this decision periodically and provide a time frame in which employees can expect an update. Be sure to follow through with this communication, or attitudes toward the freeze will quickly sour.

Let Contract and Temporary Employees Go

Contract workers and temporary employees expect to be let go when the business needs change. While this causes some turmoil in the lives of temporary employees, the employer does not have the same commitment to these workers as to regular employees.

Temps provide a cushion of safety for the ongoing employment of regular employees. To avoid employee layoffs, let all contract and temporary staff go.

Incentivize Employees to Leave

Ask employees to take voluntary layoffs, offer a buyout to end the employment relationship, or offer early retirement to eligible employees. All three of these actions give employees options and are viewed less negatively by the remaining staff.

These options, while effective in cutting costs in the long term, are expensive in the short term. A substantial sum of money is necessary to encourage employees to walk away from their jobs. In a voluntary layoff, no employee will volunteer without a substantial severance package or guaranteed return-to-work rights, usually within a specified time frame.

Take Advantage of Normal Employee Attrition

In every organization, employees leave. If the situation isn't yet critical, you can patiently plan to save some costs as employees resign. Reasons range from a significant other's job change to family matters and new career opportunities.

A voluntary quit may allow you to restructure your workflow. You may be able to transfer employees to different jobs. Only critical, essential positions should be filled. Keep in mind, though, that in tough economic times, your attrition rate will likely slow.

Reduce Pay Rates, Fringe Benefits, or Work Hours

If you need to reduce employee pay, benefits, or hours, think through the ramifications of this decision. Your best employees—the one you most want to retain going forward, who are critical to your company’s future—will be negatively impacted by the decision. And these are often the employees who have options.

Before considering this business decision, recognize that these actions may cause your best employees to leave, and could damage trust levels across the organization.

Schedule Unpaid Employee Furloughs

A furlough is an alternative to layoffs. In a mandatory furlough, employees take unpaid or partially paid time off of work for periods of time ranging from weeks to a year. The employees generally have either scheduled time off or call-back rights and expectations.

Examples of furloughs include closing a business for two weeks, reducing employee time on the job to three weeks a month instead of four, and asking employees to take two days a month off without pay. Other employees have been put on furloughs indefinitely.

In a furlough, benefits usually continue, which is one of the differentiating factors from a layoff. Even so, the negative impact on your workforce can be great, and many valuable employees will likely move on.

The Bottom Line: If Layoffs Are Necessary

If you've considered all these alternatives and tried some (and documented it), but still find that a workforce reduction is necessary, then you'll have to plan carefully for how to implement the layoffs. These decisions are never easy, and they're even harder to communicate to your employes. But at least you can show them that you considered every possible alternative.