HR Headaches: How to Avoid Layoffs

Layoffs can have damaging downstream impacts on your business. Consider these alternatives to laying off employees.

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In 2022, the U.S. tech industry experienced an unprecedented amount of layoffs during the months of May to June. According to TechCrunch, job cuts by the end of June had amounted to 22,000 job losses. The layoffs spanned across established publicly traded organizations like Netflix, to high-growth startups like Bolt.

Layoffs are a common strategy used by companies that are trying to save costs. When an employee is laid off, it means they have been let go from a company, by no fault of their own. Rather, business owners are reacting to economic conditions that have made it impossible to keep employees on the company payroll.

As a small business owner, you may be wondering what you can do to prevent laying people off, and for good reason! Layoffs can have damaging downstream impacts on your business.

In this article, we will discuss the different strategies you can implement before removing people from your company payroll.

What are the downstream impacts of layoffs for companies?

If you’re considering doing layoffs, first think about the negative impacts this could have on your employees and your business. These include:

Decreased morale

Research by various universities has found that once a layoff happens, the surviving employees experience a:

  • 41% decline in job satisfaction
  • 36% decline in organizational commitment
  • 20% decline in job performance

Once a layoff happens, employees may feel burdened and overwhelmed as they inevitably have to take on their colleagues’ work. Already stressed and burned out employees become more stressed by their workload.

Decreased mental well-being

Once layoffs happen, the majority of your remaining employees will wonder, “am I next?” The Journal of Occupational Health Psychology states that this fear can induce more anxiety for employees than actually being laid off.

On top of the stress from all the extra work, employees are saddened to say goodbye to their colleagues and feel scared for what the future of the company may hold.

Decrease in financial performance

It takes time and effort to replace the skills and fill the knowledge gap that laid off employees had. In many instances, companies hire consultants or contractors to fill those voids, which can counteract cost savings resulting from layoffs.

When a public company announces layoffs, the company’s stock prices can be negatively impacted, which can put further stress on the people left working within the organization.

Unless layoffs are strategically taking place as part of a longer-term strategy to evolve a company, they can often have reverse effects on financial performance.

Damage to employer brand

When you conduct mass layoffs, future employees will see this as an indicator that your company is unstable. This can impact their decision to join your organization.

Conducting mass layoffs can also impact how your brand is portrayed from a social perspective. Since layoffs impact communities and their livelihood, your brand may receive backlash for not protecting its people.

In this period of the Great Resignation, the war to keep your top talent is fiercer than ever. Having a strong employer brand will help develop your talent pipeline.

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3 suggestions for alternative strategies to avoid layoffs

Before resorting to mass layoffs, we recommend trying out the following 3 suggestions during your next financial downturn.

1. Ask your employees for creative ideas to save money

At the beginning of the COVID-19 pandemic, Gravity Payments was going through a financial crisis. They were experiencing a 55% drop in monthly revenue and needed a plan to navigate this financial loss.

Before deciding to take any action, the CEO communicated the current state of the company and solicited his employees for creative solutions. They conducted small focus groups to brainstorm an equitable strategy that would keep the company afloat, avoid laying anyone off, and avoid price hikes for their customers.

The result? Everyone in the organization took a voluntary pay cut which amounted to a 20% decrease in salary expenses. The amount for the pay cuts was not disclosed publicly, and each person decided how much of a pay cut they were able to afford in order to stay on the company payroll.

Not only was their company able to survive, but they are now in a position financially where all employee salaries have been restored. Anything they lost in pay cuts has also been repaid.

2. Consider the short-term strategies you can implement to quickly save costs

Before jumping to layoffs, consider doing a total audit of your discretionary spending within the organization. Discretionary spending could look like perks and benefits, lifestyle spending, training and development opportunities, bonuses, or social events.

While your employees may enjoy these perks, they will understand why they are being removed if the reasons are being well-communicated. When finances become stronger, you can always reinstate perks.

You can also consider hiring and salary freezes. Again, be clear with your employees on why this is happening, and what the long-term plan will look like for reinstating hiring and promotions. Otherwise, you’ll risk hurting your employees’ morale and commitment to your company.

3. Get creative with time and money to avoid layoffs

Reduce employee pay

Over the COVID-19 pandemic, we saw many leaders reduce salaries rather than reduce headcount. According to 1 study, 537 public companies implemented pay cuts for their senior management team. Aon is one example of a company that slashed their employee salaries by 20%, with top executives giving up 50% of their salary.

Offer unpaid sabbaticals

Offering unpaid sabbatical leave is another way to help you save money while keeping employees on your payroll. According to one SHRM report, companies can save 10% from their gross expenses by implementing sabbaticals.

Sabbaticals offer you a way to keep your best employees around while you recoup your financial losses. It can also provide your employees with an opportunity to recharge, focus on their personal life, and return to work rejuvenated.

Of course, the majority of people will not be able to afford an unpaid sabbatical, but there will be folks within the organization who would jump at the opportunity! Many Millennials in today’s job market have no problem quitting their full-time job with nothing lined up. They view time off as a necessary step along their journey.

Reduce hours

Businesses can reduce working hours during times of crisis in order to keep their people on staff. While the pressure of completing the same amount of work in a shorter time frame can be challenging, this strategy can help keep people employed.

What to do when your work reductions are inevitable

Unfortunately, there will be times when no matter how hard you try, layoffs will be the only path forward for your organization. If you are planning to downsize your workforce, Zenefits recommends the following steps for how to handle layoffs:

  1. Create a plan that prioritizes the health of your business and the well-being of your employees.
  2. Speak with your legal counsel to ensure you’re doing everything by the book.
  3. Create a change management and communication plan for the lead-up to the layoffs, the actual layoffs, and the time that follows.
  4. Offer impacted hires benefits and references.
  5. Offer ongoing support to the remaining employees.
  6. Be as human and empathetic as possible throughout it all!

As layoffs continue to sweep through the tech industry across North America, it’s important that you create a plan for your company if you’re heading into an economic downturn.

How you treat your talent during hard times can impact your brand, your customers, and the future of your company.

Remember that your talent is your most valuable asset! How you treat them during hard times can impact your brand, your customers, and the future of your company.

While you can’t always control what is happening in the market and the world outside your company, you can do your part to create a safe, stable, and equitable environment for your employees.

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