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8 ways to limit layoffs

When the economic cycle heads down, companies discover that the only way to survive is to dramatically cut back. Often, that includes cutting back on employees.

But there are ways to bolster your business's bottom line without handing out pink slips. These eight strategies can help you avoid or at least minimize downturn-related dismissals.

1. Hire prudently
If you're appropriately staffed, you may be able to escape layoffs. When you can afford more hired hands, don't go overboard. And don't spend more than you have to when setting a new employee's starting salary. That way, when bad times arrive and work slows to a crawl, you won't have too many workers and your company won't be overloaded in overhead.

2. Adjust pay
A pre-emptive hiring strategy, however, is not always easy to follow, especially when a company takes off and needs all the help it can get. If you overloaded on employees in boom times and don't want to simply reduce numbers during the bust, Dr. Harry Gruber suggests adjusting salaries.

"Many companies overspent for employees during the dot-com boom, and now they can't support those salaries," says Gruber, CEO and founder of Kintera Inc. Something's got to give, so instead of axing employees, you can simply negotiate with employees to pay them less.

No employee wants to get paid less, but if you explain the situation, a worker probably would prefer a smaller paycheck to no paycheck at all. And if your company is in the position to do so, consider offering to "repay" employees when business picks up again.

3. Reduce hours
Along the payroll front, your company can reduce people's hours or ask them to take unpaid vacations during slow times. For example, many manufacturers routinely close between Christmas and New Year's because business is slow and employees can at least spend time with their families during slow times.

4. Offer early-out options
Companies also can save jobs by offering severance to senior employees who are close to retirement. That's how a majority of human resource professionals surveyed by the Society for Human Resource Management said they were cutting back without laying off workers.

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In the September 2001 poll, the top four steps taken to prevent dismissals were:

  • Attrition, including early-outs (63 percent)

  • Employment freeze (49 percent)

  • Not renewing contract workers (21 percent)

  • Encouraging employees to take vacations (20 percent)

5. Share the work
Investigate employee job sharing. That way, everybody's hours are reduced, and everybody shares equally in the economic duress, says Alice Magos, small-business analyst with CCH Inc.'s SOHO Group in Riverwood, Ill. Some of your employees may actually welcome the chance to work part-time, and it can benefit your company. As employees cross-train to do different jobs, you'll have a more versatile work force.

6. Limit locations
If your company has remote offices, consider closing them and sending your employees home to work. At Gruber's Internet marketing company for nonprofits, much of the sales force works from home. They prefer it that way, and it saves the company money on real estate.

7. Trim benefits
At the same time that salaries (and the accompanying worker shortage) soared during the dot-com boom, employee benefits blossomed. If your company is going through hard times, now may be the time to prune back those benefits, particularly if their costs are threatening to overwhelm your company, says Doug Jobling, program manager for the Rhode Island Small Business Development Center at Bryant College in Smithfield, R.I.

For example, a small-business owner can cut back on health insurance coverage or ask employees to contribute a larger share. If your company has a 401(k) program, consider cutting or eliminating the company contribution. Nobody wants to be a Scrooge, but when something's got to give, cutting back on benefits is often preferable to firing employees.

8. Pare the perks
Before you take the knife to regular benefits, take a hard look at office extras. Perks should be the first thing to go, unless employee morale is going to plummet.

Skipping a year-end bonus can save your company money. If it's a question of getting a bonus and getting a pink slip, most employees will thankfully skip the extra pay if it ensures their long-term employment.

Jobling also advises owners of small companies to cut excess overhead. Maybe you can safely jettison the Friday night beer blasts or the coffee service. And don't forget to ask your employees what they're willing to sacrifice to save jobs.

In fact, maintaining a dialogue with workers during a time of cutbacks is critical.

"I think the most important thing when you're trying to avoid layoffs is communication," Magos says. "Ask your people for help. Involve them in the process."

Even if they can't come up with layoff alternatives, just being involved will help them adjust to whatever is necessary to keep the company viable.

Jenny C. McCune is a contributing editor based in Montana.

-- Posted: March 13, 2002

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See Also
Fumbled firings make a bad situation worse
Flex your company's muscle with adjustable hours

Tackling tough business times

More Small Biz stories

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