In 2009, determining staffing levels -- which most likely means reducing them -- is a painful topic. But regardless of that pain, thousands of businesses, whether they’re planning for the possibility of more dire economic conditions or already have their backs to the wall, must consider how they can cut labor costs.
In the long run, good workers will always be hard to find and retain. So savvy companies will work hard to cause the least trauma among a cadre of workers that they’ve cultivated for years or decades, both those they keep through hard times and those they decide to let go. But sometimes headcount reduction through attrition and retirement just isn’t enough.
To minimize damage to working relationships and to the employer’s reputation, it pays to survey the full range of other options for reducing labor costs, and to consider the least harmful tactics first. Here’s a rundown of the options and their pros and cons.
Cutting Back on Temp and Contract Workers
Contingent workers understand that their employment is provisional -- and so do their full-time coworkers. That’s why many employers, even high-flying companies, are cutting back on temporary and contract workers to weather this recession.
Trimming your contingent workforce can help you cut labor costs without devastating the morale of your full-time workers. And, with no need to pay severance or other separation expenses, it’s an attractive tactic for firms that are hard-pressed by falling revenue and tight credit.
Mandating Furloughs, Unpaid Time Off
In this economic environment, some companies suffer excess inventory or a crimp in credit that forces them to impose time off on their workers.
The struggling Detroit Three automakers made headlines when they extended their 2008 holiday shutdowns to reduce their operating losses. But it’s not just the manufacturing sector that’s imposing unpaid time off on employees to reduce expenses. The University of Maryland Medical Center is mandating that 67,000 of its 80,000 employees forgo some work and pay to address its budget crisis.
The advantages of a furlough: The economic pain inflicted on employees, though sharp for many, is brief. The disadvantages: your reputation for job security will take a hit, even if your overall financial situation isn’t desperate.
“If possible, communicate furloughs in person,” says Matuson. “Err on the side of caution; don’t tell employees you think they will be called back in four weeks if eight weeks is more realistic. And be prepared to answer some difficult questions, such as, ‘Will there be more layoffs?’ ”
An increasingly common tactic for reducing payroll is to cut back full-time employees’ hours without eliminating their jobs. In December 2008, there were 8 million Americans involuntarily working part-time, an increase of 3.4 million over a year earlier, according to the Bureau of Labor Statistics.
The pros of making some full-time workers part-time: You maintain a working relationship with the affected workers and can quickly bring them back up to full-time almost instantly when a recovery begins to buoy your business. The cons: Living on the financial edge as so many Americans do, your workers may suffer serious hardships through no fault of their own.
In any reduced-hours plan, the status of benefits must be carefully considered, says Kathleen Davis, professor of human resources management at Temple University. “Employees will be thinking, ‘If you’re going to talk to me about going to three-quarters-time or half-time, let me keep my health insurance; I can’t think about tapping my 401(k) this year,’ ” says Davis. “If you leave these benefits in place, you have a viable way of talking about reduced hours.”
Some workers might even welcome the reduction in hours, under the right circumstances. “It’s all in the timing,” says Roberta Matuson, president of Human Resource Solutions. “If you approach people in May, they might say, “Gee, I’d like to spend more time with my family this summer.’”
A wide range of companies have taken the painful step of a unilateral pay cut for many of their salaried workers.
No matter how you present it, requiring workers to put in the same amount of work for less compensation will alienate them. Workers’ negative feelings can be mitigated to some extent if they believe that the pain is shared all the up the ladder, including the C-level executives.
Permanently Reducing the Workforce
Many companies who have avoided layoffs for decades now feel forced to consider them. The negatives of permanent workforce reductions go far beyond the bitterness of those who are terminated.
“For managers, there’s a huge issue with the effects of layoffs on the survivors,” says Paul Osterman, professor of human resources and management at the MIT Sloan School of Management.
Even when layoffs are unavoidable, it matters much how they are carried out. “Employees want information, full disclosure,” says Osterman. “The company needs to say how the layoffs will be decided: by seniority, by merit, or whatever.”
The specter of layoffs is inevitably a distraction for your workforce. But with no transparency in the process, each of your employees will report to work every day in the shadow of a sword of Damocles. That stress puts them in no position to help your company weather the gale of a deep recession.