Viable alternatives to layoffs
September 30, 2024 by Jen David
When a business needs to cut costs, workforce reduction can become the default solution. In this article, we’re looking at alternatives to layoffs. While layoffs may sometimes be necessary to ensure the business can achieve its long-term objectives, there are other methods to explore. These permanent and temporary options are worth considering, to ensure the company can achieve financial success whilst minimising any negative impact on its employees.
We’ll focus on three strategies that can be used by businesses of any size – but before we do, let’s understand why businesses might want to avoid layoffs in the first place.
Alternatives to layoffs – why you may need them
Layoffs are difficult for everyone. They cause stress for the HR team and managers, for the staff being laid off, and even the staff remaining. They can also dent the company’s reputation, as they can signal financial struggles or a company that doesn’t care about its employees.
Employee resentment is also a significant concern, which is why, if layoffs are unavoidable, we recommend easing the process by using an outplacement service. Outplacement can help your employees to secure new, meaningful work faster than they would on their own, minimising the stress and reducing the potential for lawsuits and reputational damage.
Find out more about Careerminds outplacement services and how we can support your workforce reduction by clicking on the link below.
Top three alternatives to layoffs
1. Temporary layoffs (also known as furlough)
A temporary layoff saves costs by enforcing a temporary leave of absence, whilst leaving the door open for future re-employment in the same position. During this time, the Ministry of Manpower requires that you still pay at least 50% of their salary for the layoff period and that the period doesn’t exceed one month at a time, subject to review.
An example of where temporary layoffs may help your company can be found in seasonal businesses. Imagine an ice cream shop, which is busy in summer but very quiet in winter. The company can implement temporary layoffs to save money over the winter, guaranteeing that staff still have a job waiting when the shop gets busy again. They can retain their experienced staff whilst minimising costs.
Temporary layoffs can take several forms – for example, a company may opt to shut down operations for a period of time, implement shorter work weeks, or mandate unpaid time off. These options allow businesses to regain financial stability without losing valued and knowledgeable staff.
If furlough is selected as an alternative to layoffs, it’s important to carefully consider which employees will be affected. For example, temporarily laying off higher-salaried employees can deliver the required cost reductions, but with a negative impact on morale and retention. It’s also crucial not to discriminate against employees or groups of employees; all decisions must be based on an individual’s ability to contribute to the future needs of the business.
2. Reduction in pay
Another viable alternative to layoffs is forcing a reduction in pay. Direct adjustments to wages can be delivered by reducing the annual salary, monthly variable components, or other allowances. This option can deliver significant cost savings, especially if implemented at executive level, but should only be enforced for as long as is necessary to regain financial balance.
Let’s look at how this could be implemented:
Clear, transparent communications
Before taking any action, company leaders need to openly communicate about the necessity for cost saving. They should explain the company’s current financial challenges and the rationale behind the decision to reduce employee pay. In fact, good communication is critical whichever alternative to layoffs you choose.
Impact assessment
Company finances must be analysed to assess the extent of the pay cuts required. It’s a fine balance between cutting costs and maintaining viability. Consider revenue projections, operating expenses and cash flow requirements.
Tiering
It may be possible to take a tiered approach to pay reductions. This involves adjusting salaries based on seniority or salary bands. This way, higher-paid executives will take proportionally higher pay cuts.
Equity
Pay cuts must be implemented fairly and equitably across the staff base. Specific individuals should not be targeted for pay cuts based on personal factors – instead, create a uniform and cohesive approach that applies across the board.
Time frame
Ensure that everyone understands that the pay cuts are temporary, aimed at addressing a specific financial problem, and reiterate that original salaries will be restored at the end of the temporary pay cut.
Mitigation
In lieu of pay, staff could be offered alternative benefits to offset the impact of the salary reduction. They could include additional leave, stock options, or performance bonuses linked to future successes.
Compliance
Consult with your legal team to ensure that your proposed pay cuts comply with employment laws and regulations. Together, you will need to review contractual agreements that may affect the company’s ability to introduce this measure.
As a very last resort, employees can also be offered the option of unpaid leave.
3. Hiring freezes
This is one of the easier alternatives to layoffs to implement. It involves suspending all recruitment activity: no new employees are hired, vacant positions are not filled, and new positions are not created.
The key benefit of this option is that it avoids the financial and reputational risks associated with layoffs. Companies have greater control over labour costs and minimise the need for layoffs as the business faces economic uncertainty, while at the same time maintaining the stability of the existing workforce. This avoids disruption and reduced productivity arising as a result of low morale.
The downside is that, although effective short term, hiring freezes can be problematic in the long term – especially if key roles are unfilled for an extended time. Essential positions need to be prioritised, in order to maintain productive operations.
Linked to hiring freezes is attrition. This is the natural reduction in the size of a workforce due to reasons such as retirement, resignation, or termination. By not replacing these employees, the company can gradually reduce their staffing level without the need for layoffs. This maintains a sense of stability and minimises impact on the morale of remaining staff.
Attrition can be a successful way of reducing the workforce, but unfortunately doesn’t always align with immediate staffing needs. It also takes longer to have an effect than other alternatives to layoffs.
Both hiring freezes and attrition are viable methods of reducing the size of the workforce, with fewer negative effects than layoffs, but can take more time to deliver results.
Final thoughts on alternatives to layoffs
Sadly, workforce reductions are sometimes unavoidable. However, there are various strategies that can achieve this without resorting to layoffs. These options enable companies to achieve their financial goals, adapt to changing economic conditions, and sustain flexible operations, whilst maintaining employee morale and productivity. To be successful, they require careful planning, open communication, and on-going evaluation to ensure they continue to deliver on organisational objectives.
In this article, we’ve shown that:
- Layoffs are a stressful event, with negative impacts on staff, HR teams, and the company
- Outplacement services can reduce the stress involved with layoffs, reduce risk to the business, and support affected employees through the transition
- Temporary layoffs enable companies to save money and retain valued and experienced staff
- Reductions in pay can deliver cost reductions, particularly at executive level, without affecting day-to-day operations
- Hiring freezes and attrition enable a gradual reduction in workforce and associated costs without impacting stability or morale
Are you facing a workforce reduction? Whether you opt for layoffs or one of the alternatives to layoffs that we’ve discussed above, we’re here to support you. Take a look at the Careerminds outplacement service and find a true business partner to guide you through this challenging time.
In need of outplacement assistance?
At Careerminds, we care about people first. That’s why we offer personalized talent management solutions for every level at lower costs, globally.