As mass shutdowns occured all over the country due to the coronavirus pandemic, layoff rates surged at unprecedented levels. The wave of unemployment claims surpassed the most ever reported by the U.S. Department of Labor since they began reporting in 1967 by over nine times.
As this trend continues, employers across the country are facing some of the hardest decisions of their careers: to layoff employees or keep their workforce intact.
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Before you start down the path of layoffs, read on. Today, we’re sharing five alternatives to layoffs that could help your company weather this storm, retain your key talent and emerge stronger than before.
Negative Results of Layoffs
In the short-term, layoffs might seem like the most viable option when your company needs to downsize, cut budgets and free up cash flow. However, it’s important to take a step back and consider the negative consequences of this decision:
1. Severance Pay
While laying off staff members is one way to save money on payroll and benefits, there are often unanticipated, long-term costs incurred when you make this move. One of those is severance pay.
While each state has its own laws surrounding this, there are two instances in which you might be legally required to pay your outgoing employees a severance package, including benefits. These include:
- If you terminate an employee due to a facility closing or a large-scale company layoff
- If you led the employee to believe that they would be paid severance
Depending on the situation, this package could wind up being much costlier than expected. For that reason, it’s important to calculate these costs before proceeding with layoffs.
2. Lower Morale
When you lay off an employee, that person isn’t the only one affected. Remaining employees suffer, as well. In addition to mourning the loss of a team member, they’re often faced with the task of carrying their workload.
This can cause morale to dip and could increase turnover if other employees fear their jobs are the next to be cut.
3. Lost Productivity
What happens when anxiety levels rise and tension builds? Team productivity inevitably wanes. When employees work in fear, they aren’t producing at 100%, regardless of their position in the company. This is especially the case if the person being laid off continues to work up until the date of their contract termination.
4. Damaged Customer Retention
Laying off employees sends a message that your company is in some sort of financial crisis or distress. This can negatively affect your business reputation and make it more difficult to retain even your most loyal customers.
5 Alternatives to Layoffs
While layoffs might seem like the most obvious choice, especially during times of crisis, there are alternatives to consider. In many cases, the most transparent and efficient measure to take is to ask employees directly for their ideas.
Given that the issue isn’t performance-related, be open and honest about your current financial situation. Ask for input on ways to cut the budget, improve productivity and make operations leaner. In addition, consider these five other options:
1. Cut Extra Employee Expenses
Take a close look at how much you’re currently spending on employee bonuses, raises and overtime. Are there any ways you can reduce those expenses? Calculate how much money you could save if you froze additional hiring and laser-focused on just the basics.
2. Reduce Wages or Benefits
Available wage data shows that the top 1% of workers see an annual 3.7% increase in wages, compared to the 1% increase allocated for the bottom 90%.
What does this mean for your business? When you’re looking for areas to cut, start at the top. How much are your senior managers making, and could wage or benefit cuts there ease the economic burden you’re facing? When the brunt of the impact takes place at the top, it can help reductions at the bottom go over more smoothly.
As you communicate pay cuts to employees, it’s natural for them to experience some level of change resistance, fear and uncertainty. This is why an organizational change management plan is essential. This plan should focus on transparent communication. It should outline the audience and timing of your messages, and it should equip your managers with the resources they need to lead change within their departments.
3. Scale Back Production
It’s a simple formula, but not always easy to implement: When you don’t produce as much, you don’t need as much. One way to cut operational costs as quickly as possible is to scale back production to the bare necessities.
To determine which product line, sales region or customer segment to eliminate, ask these questions:
- Which programs involve a significant amount of work but only support a portion of our company?
- Are any programs inherently unprofitable?
- Are any programs less profitable than our company average?
You might find that you need to shut down certain manufacturing plants altogether during a crisis – to both save money and protect workers from the pandemic. In other cases, saving money might entail selling certain assets or trying to get a portion of your business acquired.
4. Renegotiate Vendor and Supplier Contracts
Sometimes, the answer to this challenge lies outside of your internal team. Consider the contracts you have in place along your supply chain, including those with your vendors and suppliers. Depending on the status of those relationships, you might be able to reach out to those points of contact and negotiate a better deal.
To increase your odds of approval, be as prepared as possible when you make the call. Deliver market data to back up your points and try to focus on the positives. Remind them you’re calling to do more than cut costs – a more favorable contract can help increase your future order capacity, build your long-term relationship and could even extend your contract length.
5. Become More Efficient
Finally, look for ways that you can simply become more cost-aware and efficient. This might mean evaluating current employee assignments to see if certain workers would be more productive in a different department. Or it might mean developing a new digital strategy.
If you do decide to ramp up your digital strategy, make sure your workforce is ready to embrace new technology. A key component of strategic human capital management is helping employees embrace new and innovative ways of working through change management communication and training.
New technology inevitably starts a discussion about business processes, so it’s important to dedicate time to business process reengineering before you select technology. Improving your processes can help you reduce costs, quicken cycle times and keep layoffs off the table.
Avoiding Layoffs and Keeping Your Organization Intact
In a time of financial crisis, layoffs are one of the first options that managers consider. While the move can be beneficial for some companies, it can set others up for even further decline.
That’s why it’s important to weigh these alternatives to layoffs. By examining your budget from every angle, you may find areas you can strategically change.
Our team provides financial restructuring services as well as operations management consulting. Request a free consultation below.