Laying off workers can strain more than the employees who lose their jobs and the managers who have to deliver the bad news. Studies of corporate downsizing show that, while organizations view layoffs as a cost-reduction strategy, they typically don’t reduce expenses as much as the execs had hoped.
Many employees would choose a pay cut or unpaid sabbatical over losing their jobs. Keeping them on the team means they’re more likely to stay with your organization when the economy improves and you need them again.
Before your organization starts handing out pink slips, consider some alternatives that have worked for employers during past economic slumps.
1. Cut hours, not jobs. With business slowing, many employers are choosing to trim employees’ hours rather than cut jobs—so far. According to new U.S. Department of Labor stats, the hours worked by the average private-sector U.S. employee declined this spring for the first time since 2001.
Example: One university reduced staff hours by just 1.5 hours per week—and redirected that time to employees whose jobs were in jeopardy. The result: no layoffs.
2. Freeze salaries. A survey of HR compensation execs and CEOs found nearly one in three would freeze salaries or consider it in response to the economic downturn.
According to Hay Group’s Slowing Economic Spot Survey, executives, managers and other professionals are most at risk for salary freezes. Skilled trade and support or clerical employees still may see pay increases.
3. Stop hiring. During a previous downturn, the city of Albuquerque avoided 400 layoffs by freezing hiring and eliminating vacant positions. A hiring freeze can be either absolute (No new hires!) or flexible, allowing leeway to fill essential positions.
4. Ask for volunteers. You might be surprised how many of your employees would agree to an unpaid or partial-pay break from work. Ask employees to volunteer for a temporary furlough, with an agreement to recall them to their regular jobs within a certain time frame.
5. Restrict overtime. At some organizations, overtime accounts for as much as 10% of payroll. Put strict limits on overtime during the slump. Your organization could save enough to keep your staff intact. Be prepared for some backlash from employees who’ve come to depend on the extra income from overtime.
Tip: Tell employees how many jobs the organization can save by reducing overtime, and offer an estimated time frame for lifting the restriction.
6. Shift staff around. Moving employees from jobs slated for downsizing to open positions not only mitigates the need for layoffs but also taps the experience of existing workers.
Tips: Provide enough training to give transferred workers a chance to succeed. Designate a try-out period of three months or so before making the arrangement permanent.
7. Offer early retirement. Older employees might opt for retirement if you offer incentives—especially continued or subsidized health benefits. Caution: Early retirement won’t save your organization any money if you fill the vacancies right away. Savings come from leaving the positions vacant for a year or more.
Note: This strategy can backfire if it causes a flood of early retirements, which could dramatically raise retirement system costs.
8. Embrace job sharing. For some, a part-time job is better than no job at all.
Example: If you have to eliminate a clerical position, ask admin staff if anyone would accept fewer hours so an at-risk colleague can split the job. Work with their supervisors to divide the work and set new hours that ensure job functions are always covered.
Tip: Some states allow “work sharing” partners to collect partial unemployment insurance if the arrangement is temporary and economy-induced.
A caution: Ensure that you’re not requiring the two part-timers to take on the duties of the job you eliminated. They’re supposed to share one full-time job, not two.
9. “Lend” your employees out. During the 2002 recession, technology giant Texas Instruments avoided layoffs by finding temporary jobs for some of its HR specialists—up to eight months—with its vendors. The suppliers reimbursed TI for the employees’ salaries and agreed not to offer them permanent jobs.
10. Let employees choose. Some companies are offering employees the chance to pick their poison.
Example: Allow employees to choose between a 5% pay cut or a four-day workweek with a corresponding decrease in pay.