Have times been tough at your small business? Yeah, we get it: running a business isn’t all sunshine and rainbows, especially when you have to weather a few years of crazy downturn followed by skyrocketing inflation. If you’re sweating over your books, and wondering what to do, you might be considering letting go of some of your employees – and you wouldn’t be alone. Even the big guys are turning to layoffs to make ends meet: according to SHRM, “In a survey of U.S. business executives by professional services firm PwC, 50% of respondents indicated that they were reducing their companies’ headcounts.”
But is jumping right to laying off employees the right course of action? Not necessarily. You might want to look into some alternatives to layoffs, so read on to find out your options.
The Problems with Layoffs
As a small business owner, you’re probably not super excited about the prospect of giving some of your valued employees the ax. And it might not actually be the best thing to do, anyway. Consider these potential pitfalls of layoffs. You might end up:
- Needing to provide severance pay
- Facing increased unemployment insurance rates
- Dealing with lower morale among your remaining employees, which could lead to lower productivity
- Looking at a higher turnover rate and lower productivity as your workforce shrinks and employees become more overwhelmed – in fact, research shows that letting go of just 1% of your team can significantly decrease the engagement, performance, and job satisfaction levels of your remaining staff
- Feeling shorthanded when business picks up
Alternatives to Layoffs
So maybe layoffs aren’t the way to go for your business. If that’s what you’re thinking, you can consider the following alternatives to help you get financially back on track without having to completely jettison the people you rely on:
The word “layoff” can be very scary for employees, because although it actually implies that a business might need to bring workers back at some point, it does feel very permanent. So instead of laying off employees, consider furloughing them, which would allow you to save money without losing your employee altogether. A furlough is basically a mandatory unpaid leave of absence, but it can also mean reduced hours. An unpaid absence is obviously not ideal for employees, but at least they know they will be back when you are able to pay them again. Remember, you’ll need to research your state’s employment laws regarding any mandatory treatment of your employees’ benefits during a furlough.
Job sharing lets two employees share duties in a job that normally would be filled by one full-time employee. This is a way to save money so that you can ultimately get back to a normal work schedule when things improve. There are actually government-backed work-sharing programs that allow the affected employees to collect partial unemployment benefits to help offset lost wages. This is a great way to keep valued employees around, so check to see if your state offers a program like this.
Reduced work hours for non-exempt employees
Non-exempt employees are only entitled to pay for hours worked, so reducing their hours and/or restricting overtime can save your business money in hourly wages. Your state might actually allow employees to collect unemployment benefits if their hours drop below a certain point. So check what your state law is, and make sure you consider the impact of reducing hours on employees if they can’t make up for the pay in other ways.
So how do you most effectively reduce hours, while keeping things running? Consider separating your employees into three tiers: critical, essential, and those who are not as essential and subject to the biggest cuts. You can then divide up hours among them as necessary.
Sure, no one wants to hear that they’re going to be making less money for doing the same amount of work, but if it’s the only way to keep your business going, it might be the best option. The secret to doing pay cuts right? Honest communication, and implementing the cuts in a uniform way, across the board, so everyone feels like they’re in it together. According to Jill Chapman, senior performance consultant at Insperity, a professional employer organization (PEO), “For [pay cuts] to be effective, there must be an agreed-upon, uniform cut percentage across the board. Though this will hurt in the short term, it is definitely a more stable alternative for both the employee and employer.”
Cuts in benefits or perks
You can also consider cutting things other than pay, like benefits and perks. You can look at reducing any extras you’re providing, including:
- Free food (Remembering, though, that free food is listed as a highly desirable perk!)
- Employer-branded swag
- Travel expenses
- Switching from attending events to videoconferencing
- Lowering or eliminating a 401(k) match
If you have a larger business with multiple departments, consider temporarily moving an employee in a department that has been affected by a downturn to a department that is in greater need.
Voluntary paid time off
Furloughs are mandatory unpaid leaves of absence, but you also have the option of offering your employees some voluntary unpaid time off. If you know that there is an employee who wants to do some extended traveling, go back to school, or work on a personal project, you can suggest that now would be a great time to do that, and then return to their position when your business is in better shape. Unfortunately, your employee won’t be eligible for unemployment benefits if they take this option, so make sure they’ll be able to do it without going under.
Think about the composition of your workforce
To be proactive, and hopefully avoid layoffs in the future, consider employing a mix of contract workers and full-time employees. This will allow you to stay flexible and adjust quickly to market changes.
Cut operational costs
Finally, don’t forget that there are ways to cut costs at your business that don’t include losing employees. Ask yourself:
- Will more remote work help you decrease office utility expenses?
- What business travel can you limit?
- What marketing and sales expenses can you cut back on?
- What recurring costs can you limit?
- Do you pay for any monthly services and/or tools that aren’t used frequently or that you can go without?
- Can you consolidate any services and/or tools?
We know that none of the above ways to deal with financial pressure at your business is exactly ideal, but we also know that the last thing you want to do is lose your valued employees. And that’s not just because it could be bad for your bottom line: you care about your employees and want the best for them.
So if it comes down to making the tough choices, the most important thing is that you encourage open communication throughout your business, and be honest with your employees about what your business is going through. Together, you and your team can work towards finding solutions that work for everyone, while avoiding the layoffs that can be so detrimental to your organization. And hopefully, before you know it, you’ll be back in the black and celebrating with your employees! We want to hear from you: have you had to consider layoffs? Were you able to find viable alternatives?
Co-written by Joanna Bowling