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Surviving an Economic Downturn: Creative Alternatives to Layoffs


Surviving an Economic DownturnYou want your company to be seen as an “employer of choice” so you can attract and retain great staff regardless of economic conditions, but with all the news about the economic downturn, you’re wondering whether you have any alternatives to staff layoffs. How companies treat staff when times are tough is just as important as when times are good. When the economy slows and your revenues decrease, that’s when uncertainty is high and employees become worried. It’s during these times that employers need to step up and do their best to alleviate employee concerns.

This is also the time when employers are faced with some very difficult strategic questions. Do you keep your staff and their knowledge and experience for when the economic tides turn? Do you layoff staff because you can no longer afford them? Do you seek new opportunities that you can take advantage of and continue to grow your business?

If you’re considering staff layoffs, it is critical for companies to take the following into account:

  1. Cost: There are hard costs, which can include severance payments, legal and consulting fees, and outplacement services. There are also less tangible costs like the lost knowledge and experience that walks out the door when employees are let go. And, when business does improve, there are the costs to find and train new employees.

   2. Process & Efficiency Improvements: You may have laid off employees, but the work they did still needs to get done. This can add a tremendous burden of stress on the remaining staff, and negatively impact your absenteeism, medical claims, productivity and turnover rates. Some restructuring of the way work is done is necessary or else the layoffs will not produce the desired results.

Alternatives to Layoffs

So what are some alternatives to layoffs that can still reduce your staffing budget? Depending on how long you estimate the economic slowdown to impact your business, you can consider implementing the following options:

   1. Across-the-board wage cuts: All employees agree in writing to a wage cut of X%. This keeps everyone employed, while reducing payroll expenses by the desired amount.

   2. Voluntary separation incentive packages: Rather than laying off staff, canvass employees to see if anyone is interested in voluntarily separating or retiring early from the company, and provide them with an incentive package to do so.

   3. Reduced work week: Employees reduce the hours they work in a week, with the proportional decrease in salary. In Canada, under certain circumstances, employees will be eligible for Employment Insurance payments for the portion of hours they don’t work. This has to be agreed to in writing with the Government of Canada, and should be for a specified period of time.

   4. Job sharing: A modification to reduced work weeks, two or more employees who perform similar roles reduce their work hours and “share” a position between them. This allows companies to reduce their labour costs as employees work fewer hours; however, it still allows the employer to maintain valuable skills and expertise.

5. Unpaid leaves of absence: Some employees will take advantage of these leaves (usually between 3 to 12 months) to do things like traveling, taking courses, etc. which would otherwise be difficult for them to do. At the end of the leave they return to work. Their salary expenses are saved during the period of the unpaid leave, and the employee gets a chance to do something that they value.

It’s best to choose only one or two options to minimize impact on morale. The best option to pick may be best chosen through surveying staff prior to deciding. Each option also has its own pros and cons which need to be evaluated carefully.

After reviewing each option, should none of the alternatives be appropriate and staffing levels still need to be reduced given economic conditions, layoffs may be required.

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