How to Avoid Layoffs

In tough times, companies who pursue cost-cutting strategies for how to avoid layoffs can increase security, satisfaction, and prosperity for all.

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Here's what you need to know:

  • Negative impacts of layoffs can include decreased employee morale and well-being, a decrease in financial performance, and damage to your company's brand
  • Before resorting to mass layoffs, ask your employees for creative ideas to save money
  • Consider short-term strategies you can implement to quickly save costs
  • Consider creative solutions with time and money to avoid layoffs
  • When layoffs are the only path forward, create a plan that prioritizes the health of your business and the well-being of your employees

Is your company worried about having to lay off employees? The tech layoffs that started in 2022 and amounted to more than 140,000 job losses have only accelerated in 2023.¹ This widely publicized rise has been attributed to increasing inflation and instability in the stock market. But technology’s only 1 of numerous industries to be impacted by workforce downsizing in any given year for any number of reasons. If only more of them understood how to avoid layoffs while in pursuit of long-term growth.

Layoffs are a common strategy for businesses needing to cut costs and save money during uncertain economic times. When employees are laid off, it’s not their fault. Instead, it’s the business’s reaction to changing economic or industry conditions. Labor costs run high, and they’re an easy budgetary target in the face of economic downturn. But some degree of fiscal flux is to be expected over a long-term business cycle. And workforce reductions in the form of layoffs are a drastic and often unnecessary “solution” not to be established hastily. Employers and human resources teams would be wise to first consider why and how to avoid layoffs if possible. Here we’ll cover reasons and options for alternative cost-cutting strategies that don’t involve letting valuable part-time or full-time employees go.

How do layoffs impact companies?

It’s tough to make a strong case for jumping straight to letting good employees go just to trim costs temporarily. Whether it’s massive layoffs or a smaller-scale event, staff reduction can adversely affect employees, including top performers, and businesses alike. Companies that manage layoffs well typically keep damage to a minimum. Those that don’t can end up in bad shape in the aftermath. Either way, the most common effects remain to a smaller or larger extent.

Decreased morale

Research by various universities has found that following company layoffs, surviving employees often experience:

  • Decreased job satisfaction.
  • Diminishing trust in and commitment to the organization.
  • Decline in job performance.
  • Work-related overload, stress, and burnout.

Decreased mental and physical well-being

Layoffs can take a significant psychological toll on affected employees. For many, the related stress can induce or inflame serious physical and mental-health conditions.

Even remaining employees may experience fear, anxiety, and associated effects, wondering if they’re next.

Decreased financial performance for your business

Granted, workforce reductions can reduce payroll expenses. But unless layoffs were part of a strategy to strengthen the company, they may have disastrous effects on financial performance. Consider where other costs may rise or emerge:

  • Without enough employees to cover resulting skill and knowledge gaps, companies will pay to fill those voids another way. Many turn to consultants and contractors.
  • Stock prices of public companies can be negatively impacted due to investor hesitation.
  • Decreased productivity.
  • Increased overtime pay for hourly wage employees picking up slack.
  • Increasing employee turnover rates within an overburdened remaining workforce. Those who quit their jobs perpetuate talent drain and create new, unanticipated employee turnover costs.

Damage to employer brand

Following mass layoffs, future prospective employees may perceive a company as unstable. This can impact their decision to join the organization.

Employees who were laid off may accept jobs with competitors who’ll benefit from experience and knowledge developed at your company.

Finally, mass layoffs can also impact how a brand is portrayed from a social perspective. Since layoffs impact communities and livelihoods, brands may receive collective backlash for not protecting their people.

Benefits to avoiding layoffs

Conversely, a strategic plan to avoid layoffs can deliver numerous advantages, including:

  • Reduced stress.
  • Improved employee morale and workplace culture.
  • Increased employee trust, loyalty, and commitment.
  • Preservation of brand reputation.
  • Discovery of smart ways to reduce employee turnover and cut costs no matter the current market conditions.
  • Overall cost savings to the company.

Strategies for how to avoid layoffs

Before resorting to employee layoffs, calculate your employee turnover in both past and present terms. This can help shed light on reasons why people have chosen or been forced to leave and at what costs to you. Then consider the following staff-saving alternatives:

Cut unnecessary costs

Conduct a thorough audit of your organization’s discretionary spending and what you can cut. This might include perks and benefits, lifestyle spending, training and development, bonuses, social events, and more. Also consider hiring and salary freezes.

Employees may not love the changes, but they’re likely to understand your need to conserve if you communicate it well. Also communicate your plans for reinstatement. When finances bounce back, you can choose to resume those practices that still make sense.

Reassign employees

Reassess your existing employees, their current job duties and their various skill sets, education, and experience. Use the insights to reassign employees to the positions and roles where they can best support organizational efficiency and production. To spearhead this initiative, you might ask employees what new roles they’d like to be considered for and why.

Offer reduced employee hours

You may be able to reduce employee hours to save money without causing a stir. Ask hourly staff if any would voluntarily agree to a short- or long-term schedule reduction. Some may seek better work-life balance or more time to pursue personal projects, interests, or family time. Reducing their hours per day or days per week could be the win-win solution. For 2 employees in the same boat, job sharing might be their preference.

Reduce salaried employee pay

Consider pay cuts for salaried employees as well, beginning with reduced salary for top executives. Concessions there apply leadership skills of a potentially unexpected sort toward a commitment to maintaining company solvency for all.

Offer unpaid time off

Consider offering your employees extra unpaid time off. For many employees who feel overworked, a few days or weeks away can help them recharge and recenter. Even better: Upon return, they’re likely to feel refreshed and ready to tackle their job duties with renewed vigor.

Ask your employees for creative ideas to save money

Take the time to communicate the current financial condition of the company and the problems it’s facing. Then ask your part-time and full-time employees for innovative ideas to save money. People from different departments may have methods to share for reducing waste and expenses.

When market conditions change for the worse, many companies resort to mass layoffs to save money and reduce overhead. Yet employee turnover statistics illuminate how this can be detrimental to a business’s long-term goals and success. Alternative cost-cutting strategies can help companies avoid layoffs while increasing ultimate job security, job satisfaction, and prosperity for all.

For ongoing news, tips, and resources for HR and business management, visit Workest daily. 

1 “Tech Layoffs: U.S. Companies That Have Cut Jobs In 2022 and 2023,” Crunchbase

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