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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 continue to mount. Your expenses are out-of-line with the current needs of your business.
You may need to take action with regard to your largest expense, although also the most important investment and asset of your business - the people you employ. There are no good answers. Let's look at options and then acknowledge, workforce reduction might be the best answer.
Before You Consider a Workforce Reduction
If you have employees with whom you have a contract, you can only implement these cost reduction measures by renegotiating the contract. This is also true when employees are represented by a union.
The business justification for a workforce reduction, should a workforce reduction 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.
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. But, areas such as research and development may need to be placed on hold for the short term. Another component of a hiring freeze is to put filling positions that are vacated during the hiring freeze on hold if they are not essential.
Freeze Salary and Benefit Increases
Another strategy to avoid employee layoffs is to freeze salary and benefit increases. This will be viewed as less stringent by the employees you really want to retain than some of the next options.
Pledge to review this decision periodically and provide a time frame in which employees can expect an update. When business conditions are turbulent and unpredictable, it makes no sense to add additional costs to the permanent bottom line.
Let Contract and Temporary Employees Go
Contract and temporary employees expect to be let go depending on the changing needs of the business. While this causes some turmoil in the lives of temporary employees, the employer does not have the same commitment to these employees as to regular employees.
Temps provide a cushion of safety for the ongoing employment of regular employeees. To avoid employee layoffs, let all contract and temporary staff go.
Hiring Temporary Employees
How Did You Keep Your Job?
Incentivize Employees to Leave: Voluntary Layoffs, Buyouts, Early Retirement
Ask employees to take voluntary layoffs, offer a sum of money 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 employees.
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. 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 work flow. You may be able to transfer employees to different jobs. Only critical, essential positions should be filled. Keep in mind that in tough economic times, your attrition rate will likely slow.
How to Handle an Employee Resignation
Employment Ending Checklist
Top Ten Reasons to Quit Your Job
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 employees you most want to retain going forward, the employees 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.
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.
One of the biggest expenses for many business owners are the costs associated with hiring, training, and maintaining employees. When companies downsize, one of the first places they look to trim costs is by reducing the number of employees.
Before laying off employees, be sure that you have looked at all the options, including asking your employees what they would be willing to make sacrifices for the good of the company. Employees can show surprising loyalty and flexibility for the good of the company - and to save their jobs when being faced with downsizing or layoffs.
Because employee morale will always be affected when a company downsizes, it makes good business sense to allow employees to chime in with their opinions and feelings. Few things make employees feel less valued than to surprise them in a meeting or memo that people will be let go.
Your employees are in the day-to-day trenches. They may have ideas on how to save the business money, or be willing to give up benefits, change their hours, or make other accommodations in order to keep their jobs.
Never underestimate that value asking your employees for ideas. Even if their ideas do not make good business sense and cannot be put into action, you, as the employer will have demonstrated to your workers that they matter. This morale booster may prove beneficial to employees who remain in your employment, especially if their job duties increase as a result of laying off other workers.
Offer Job Sharing: If you can combine the skills of two employees into one position, job sharing can help both employees keep their jobs but will cut your hourly wage costs. This may not work for all employees, but for some, reduced hours may be a preferable alternative to losing their job.
Cut Back on Employee Benefits: Most workers need their health insurance benefits, but other benefits like vacation pay, sick leave may be able to be trimmed down, or your policies can be revised to make them more cost effective.
For example, requiring employees to work a certain number of hours in order to accrue paid sick leave, rather than offering it all up front, can spread the costs out over time. Paid Sick Leave - Is it Required by Law?
Change Your Work Week: Many local governments throughout the country save money by staying open for business four days a week instead of five. This saves on salaries as well as operating costs.