Workforce Cost Reduction: 4 Cost-Cutting Techniques

by Sep 2, 2020Talent

Tough times require difficult decisions about the size of your payroll.

As the government begins to scale back its financial support for businesses impacted by the pandemic, leaders will be forced to do some hard analysis of their labor force. Many of us will be forced to admit we just aren’t properly staffed for the new lower level of demand for our products and services–especially since labor is the primary cost inside most of our businesses. Unfortunately, failing to act to rightsize your staff will only put the future survival of your business at risk.

So, let’s explore our options as leaders.

1. Reduced Salaries

Your first option is to simply issue a pay cut–especially for yourself and your executive team. It can send a strong message to your organization if you can survive by cutting your executive pay without impacting the wages of your frontline employees. This is especially true if you expect a strong rebound for your business in the short term. That way you can develop a plan to return to your full payroll and even potentially make people whole for their back wages.

But relying on reduced salaries is really only for short-term scenarios. If your business faces long-term reduced demand or an unclear future, you’ll need to examine some harsher scenarios.

2. Partial Layoff

One option that’s emerged in recent years in some states to help companies through difficult times is what’s called a “shared work” or “work share” program. The idea is that your employees cut back their work hours–say working three days a week–and then the state will pay the employees partial unemployment to help cover their pay for the other two days. While you’ll have to check to see if such a program is available in your state, it can be another way to bridge your demand gap in the short term while also keeping your people mostly employed and earning money to support their families.

3. Furlough

Your next option to consider, especially if you’re beginning to struggle with cash flow, is to furlough some of your staff. Different from a layoff, which we’ll tackle next, a furlough is basically a temporary layoff of an employee with the idea that you’ll hire them back when things return to normal. A furloughed employee is eligible for unemployment benefits, but the company will usually still cover other benefits, like health care insurance. Of course, there is no guarantee that someone you furlough will still be interested in coming back to work–maybe even because someone else hired them. That’s why it’s critical to really analyze the strengths and weaknesses of your team before deciding who to furlough and who to keep on the payroll. It might be wise, for instance, to keep all of your “A” players, or you risk losing them.

4. Layoff

Nobody likes to talk about doing permanent layoffs. It’s truly a failure of the organization. But, in tough times like this, it can be nobody’s fault. It can just be a matter of survival for the organization. It can also be the fairest thing to do for an employee, as it gives them the opportunity to find a better long-term job and it preserves the jobs of those left behind by making the company more viable. But, if you’re forced to conduct a layoff, you need to do it with dignity. Be transparent about why you are doing it and how you don’t know when a true recovery will begin. You can also be generous in terms of severance and covering some health care costs for a period of time. Yes, that can be expensive, but it’s the cost of making such a painful adjustment and helping someone maintain their dignity until they can get back on their feet.

So, if your business is struggling amid the fallout from the pandemic and you need to make some hard decisions about your labor staff, consider the menu of options you have before you. You don’t have to jump to a permanent layoff–there are options to keep your staff relatively whole if you think recovery is near. But, if your business is looking at a long-term decline in demand, you also need to have the courage to make hard decisions about rightsizing your business or you might otherwise risk losing everything as a result. And if you are forced to lay people off, do it the right way: with dignity and respect.