Before Turning to Layoffs, Consider This!

By Michael Timmes On May 11, 2023

When the economy slows, both employers and workers may feel apprehensive, especially since, many times, this can lead to layoffs. Layoffs may improve the short-term financial picture for a business; however, they could result in longer-term operational challenges.

Layoffs can also harm the business culture. When workers begin to think their jobs are at risk, they may feel anxious about what lies ahead if they stay in their role.

Employers may not be able to avoid hard choices. However, they should fully evaluate layoff alternatives before taking that route. Throughout the process of implementing layoff alternatives, leadership’s direct, transparent and empathetic communication with the workforce should be top priority.

Before implementing layoffs, businesses need to consider these impacts and evaluate alternatives.

Revise Compensation and Organizational Structure

If it seems business may rebound soon, short-term cuts to the salaries of C-suite executives and leadership, along with freezes on raises for all employees, could serve as a stop-gap measure. Businesses can also consider job sharing. With job sharing, the business retains the same number of employees, but divides the responsibilities of each job into two part-time roles. Employees who job share receive a lower salary, but keep their position as the business rebounds.

HR should prepare a list of answers to frequently asked questions about salary cuts or freezes. It is also important to review offer letters and employment agreements to determine if there are legal limitations that could restrict the business’s ability to reduce pay. If neither temporary salary reductions nor job sharing are good options, organizations could introduce a furlough on non-essential employees, allowing management to evaluate the impact of permanent layoffs.

Shift Scheduling

Remote or hybrid work arrangements can reduce operating costs, including rent, in-office perks and travel, and can free up space in the budget to prevent layoffs. Shifting hourly employees to a four-day workweek can accomplish the same objective by lowering salaries. Both options can boost employee morale by providing greater work-life balance.

Eliminate Non-essential Benefits

Eliminating or scaling back certain benefits and perks is another alternative to layoffs. For example, pausing or reducing company-sponsored 401(k) matching or bonuses can increase cash flow. Bonus structures are another area to consider pausing to meet immediate operational needs. That said, leadership should accept reduced benefits themselves before rolling out the cuts to all employees.

Overhaul Workflow

An economic slowdown is an ideal moment to focus on productivity. An investigation into workflows may reveal opportunities to transfer employees to a position where they are more productive or to streamline operations, like expanding project management software across teams. Employee feedback is essential to identifying these opportunities. To gather feedback, ask teams to review work distribution and roles to find room for improvement. 

About the Author: Michael Timmes is a senior human resources consultant with Insperity, a leading provider of scalable HR solutions available in the marketplace. For more information about Insperity, call (800) 465-3800 or visit www.insperity.com.

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