Alternative to layoffs as a solution to reduce costs

The COVID-19 pandemic, global conflicts such as the invasion of Ukraine, and an economic slowdown have caused a global financial crisis, which is affecting companies and employees in all sectors.…

The COVID-19 pandemic, global conflicts such as the invasion of Ukraine, and an economic slowdown have caused a global financial crisis, which is affecting companies and employees in all sectors.

Companies are facing the need to reduce their cost to overcome the current economic situation. So in these efforts to keep running, many companies have decided to lay off employees massively, which increases the economic uncertainty that, combined with the lack of prospects for recovery, has further exacerbated the situation, leading to growing concern about the future of employment for millions of workers around the world.

In times of crisis, payrolls are the first thing that companies review, resorting to layoffs to lower costs. However, this decision can be counterproductive for several reasons:

  • It generates insecurity for the rest of the workers.
  • It achieves only short-term relief.
  • It demands the reorganization of the team. 

Nevertheless, before layoffs take place, multiple alternatives can help businesses avoid assuming such a painful decision.

Related: Camel Startups And Their Advantages In Times Of Crisis

Massive layoffs and world economic crisis

During the past year, there has been a wave of layoffs in large and well-known companies worldwide, successful enterprises that no one thought would appeal to massive lay off to alleviate costs, but it happened. Those who led the layoffs were: Amazon, with 18,150 jobs eliminated, followed by Google, with 12,000; Meta, with 11,000 positions; Salesforce, with 10,090; and Microsoft, with 10,000.

How could this be possible? Amid the euphoria that many tech companies had for their success during the pandemic, several companies increased their hiring and invested in their growth plans thinking that this good run would persist, but it was not the case. Doug Herrington, Amazon’s Global Retail Chief, tried to explain the cuts stating that it was part of an effort to reduce costs: “…So we can continue to invest in the broad selection, low prices, and fast shipping our customers love.” he declared.

Although it’s a difficult situation to be in, the truth is that other companies have decided to take different alternatives beyond layoffs to ensure cost reductions. We will analyze the following possibilities:

Pay cuts

In some cases, a salary reduction may be a measure to avoid mass layoffs or to maintain the company’s sustainability. However, this should be evaluated carefully, as it may affect teams’ morale and motivation, as well as their quality of life and ability to cover their basic expenses.

If a pay cut is considered it must be as fair and transparent as possible, applying to all levels of the organization, including the higher levels of the company. It is also critical that you communicate the reasons for the salary reduction and provide alternative options to mitigate the impact on employees, such as flexible hours and the ability to work from home.

Not all companies will have significant savings with this option, so each business should analyze its financial situation before taking this measure.

Related: 5 Low-Investment And Highly Profitable Businesses

Hiring freeze

This action suspends all hiring activities for a certain period, which lasts until the company shows signs of recovery. During this stage, the organization does not replace departing employees.

‍If you plan to implement a hiring freeze, it is best to start cross-training your team members to ensure that other employees know how to perform the essential functions of a position if the worker currently filling that spot decides to leave the company.

If you decide to implement a hiring freeze, it is advisable to:

  • Evaluate the company’s needs thoroughly.
  • Communicate the decision to everyone.
  • Identify the areas in which the hiring freeze can be applied.
  • Review compensation policies.
  • Regularly evaluate the effects of the measure.

Lower spending

This alternative is not a matter of simply making cuts but of being able to do more things while spending less, as well as avoiding staff reductions. It is necessary to optimize costs by reviewing all the company’s processes, such as energy, logistics, stock management, purchasing processes, taxation, treasury, etc. Think that this moment of crisis is not something totally minded, but rather see it as the ideal moment to adjust the company and start growing.

Overtime reduction

You can do a review in this area, and if you have a lot of hourly workers, reducing overtime can save you significant money without laying off employees. You can start by asking if any of them are willing to not work overtime or even to reduce their hours to part-time. There is always the possibility that one or more of the employees may like the idea of spending less time in the office, especially if they have small children or other responsibilities.

If none of the employees are willing to give up these extra hours, you can make a slight reduction in hours, or you can reduce the work week to 4 days. If, for example, Mondays are very slow days in your business, you can consider closing the office on that day. Remember to inform your staff that you will return to full capacity when the economic situation improves.

Related: Twitter’s Redundant Workers Become A Talent Opportunity For Tech Start-Ups

Voluntary short-term sabbatical

Offering a short-term voluntary sabbatical can be a creative and effective cost-cutting alternative for a company. By allowing employees to take paid time off for a set period, the company can temporarily reduce its labor costs without having to appeal to layoffs.

You must keep in mind that some employees are more financially able to take time off from work than others, you must identify who they are, these are the ones who will certainly enjoy the opportunity to keep their jobs without pay while they work on their projects or goals. During this time, the employee can work on their own goals or benefit from a mental break and vacation.

In addition, this measure can help retain valuable employees who may be considering leaving the company for personal or professional reasons. It is important to consider how to fill temporary vacancies and ensure that employees who stay can temporarily assume the responsibilities of workers who take a sabbatical.


Benefit cuts

Temporarily reducing benefits or perks to give the company time to recover is an option other than salary cuts. What benefits can be reduced?

  • Company gifts such as pens, hats, or T-shirts.
  • Charging for meals that are usually free.
  • Controlling high travel expenses.
  • Reduce or eliminate the company’s contribution to the 401(k) plan.

Although some of these alternatives may be difficult for employees, they are better options than dismissal, keeping the job is the priority for everyone. Before taking any action, you should talk to your employees, explain the situation and make it clear that these will be temporary measures for the company to recover economically.

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