The top three alternatives to layoffs

If your business is struggling, and all you can think of to make necessary cost savings is to lay off staff, think again. 

There are alternatives to layoffs. 

While they may seem necessary to achieve certain goals and get your business back on track, there are other ways of reducing the size of the workforce, either permanently or temporarily, while allowing the organisation to recover, flourish, and attain financial success.

Among the various strategies at your disposal, we’re going to focus on three alternatives to layoffs that can be implemented by businesses of all shapes and sizes.

Before we delve into what these alternatives to layoffs are, let’s discover the reasons behind seeking them out in the first place. 

Having to lay staff members off is challenging. Not only is it stressful for those affected and for the HR department, it can be a trying time for remaining staff members as well. It can also lead to the company experiencing difficulties due to perceptions outside the business, as it can signal financial issues.

The dissatisfaction of employees is also of significant concern. That’s why, if layoffs have to occur, we suggest that the company provides top quality outplacement services to staff members to ease any tension or future worry.

Outplacement helps by:

• Enabling departing workers to secure a new role faster than if they were to search on their own.
• Removing the stress from a difficult situation.
• Reducing the chance of the company being sued for unfair dismissal.
• Decreasing the likelihood of accruing other costs along the way.

Most of us learned about this new word, furlough, during the COVID-19 pandemic when many sectors in the UK, including hospitality and retail, had to furlough employees due to shops, restaurants, and bars not being able to open or function as normal.

Furlough means giving employees a temporary leave of absence while retaining their position or assuring them that they will be re-employed in the future. While the pandemic was an unusual case, here’s a more normal example. An ice cream shop operates during the spring and summer months, up until half term holidays in late October, but is then shut for the rest of the autumn and all of winter due to a massive fall in custom. During this time, employees are furloughed. While they’re not actively working, they can be safe in the knowledge that they will have a job when the sun finally starts to appear again.

This practical approach means businesses can save costs during off-peak times, while maintaining a pool of experienced workers for the following year without the added worry of having to train new staff every season.

In this context of finding viable alternatives to layoffs, furloughs can be used in a comparable manner. Some employers shut down operations for a few days temporarily, implement reduced working weeks, or mandate specific days of unpaid leave for employees, instead of reducing pay. Enabling furloughs or extended leave allows companies to regain stability and recover in readiness for the future.

Before considering furloughing as an alternative to layoffs, you must check any legal aspects and potential impacts on employee benefits. In order to do this, you must carry out a discrimination analysis, so you offer fair treatment to all employees and select the most strategic positions to furlough. Identifying certain levels of employees – particularly those who command higher salaries – can bring about significant savings, but may affect morale and staff retention.

Another good alternative to layoffs is implementing a reduction in pay, especially at an executive level. This can be carried out via a pay cut in either the salary or the hourly rate, reducing the hours of paid work, or combining the two. Pay can be temporarily reduced for as long as is needed to bring the business back into the black and steady the ship for moving forward.

Let’s take a more detailed look into how a company can effectively execute such measures, as taking a pay cut is probably not going to be received very well by members of staff.

Before trying to enact any changes of this kind, it’s vital that senior leadership convey honest and transparent communication about the need to make these cost-saving measures. Clearly explaining the financial challenges facing the organisation, and the reasons behind the decision to reduce executive pay, will make all the difference. It might not be greeted with a fanfare, but it’s best to lay it all on the line.

In order to determine the extent of pay cuts needed to achieve cost savings, while simultaneously ensuring the company’s financial future, it is best to conduct a detailed assessment of the firm’s financial situation. Take into account factors such as cash flow requirements, current revenue projections, and operational expenses.

It might be worth considering a tiered approach to executive pay cuts, depending on the severity of the financial challenges. This means adjusting compensation levels based on seniority and salary bands, with higher paid executives taking proportionally larger pay cuts.

It must be the case that all pay reductions are introduced and carried out in a fair and equitable manner across the leadership team. Certainly don’t single out specific individuals for larger pay cuts based on personal factors, focusing instead on creating a united approach that applies to all executives uniformly.

So that executives don’t feel hard done by, make sure they realise that these reductions in pay are of a temporary nature, purely constructed to ease the immediate financial pressures on the business. Then you can articulate to executives that the business fully intends to restore their original salary once conditions improve. This simple message will speak volumes that, while you’re making these difficult decisions for the good of the company, you understand that you need to keep your executives on side as well.

Offering alternative benefits or incentives to those affected by pay cuts can go a long way to mitigating the impact of pay cuts. Examples of some benefits on the table could be additional holiday, stock options, or performance-based bonuses that are tied to the company’s future success.

Ensure that these proposed pay cuts comply with applicable employment laws and regulations by consulting legal and financial advisors. Otherwise, you could find yourself in a mess. Consider employment agreements or contractual obligations that might impact the organisation’s ability to implement these pay-cutting measures.

The final alternative to layoffs that we’re going to discuss is carrying out hiring freezes and attrition.

A hiring freeze means temporarily stopping any recruitment drives or hiring new employees, so any vacant positions aren’t filled and no new positions are created. Hiring freezes help companies to avoid any current financial and reputational costs that are associated with layoffs. 

By halting any recruitment drives, companies can control labour costs and reduce layoffs when a business is suffering through periods of economic uncertainty or downturn. They also allow organisations to maintain stability with the current workforce, thus avoiding disruptions to morale or a drop in productivity. 

Stopping any new hires is an effective short term measure. However, it can kick up problems in the long term, especially if critical roles remain unfilled for long periods of time, as this can prevent the business from moving forward. Companies need to carefully assess staffing needs, prioritising those essential positions that will ensure the continuation of smooth business operations.

Attrition is the natural reduction, over time, in the size of a workforce. This can be due to employees leaving for various reasons, such as resigning voluntarily or retiring. A business can manage a reduction in the workforce using attrition to not replace those employees who have left of their own accord or through the natural retirement process. 

Using attrition as one of the alternatives to layoffs allows companies to gradually adjust staffing levels, without having to resort to layoffs or any other drastic measure. This minimises any negative impact on staff morale, while maintaining a stable environment.

While attrition is an effective way of managing the size of the workforce, it can’t be predicted and may not align with immediate staffing requirements. Also, relying on attrition to reduce the workforce will probably take longer to achieve compared with other methods, such as layoffs or hiring freezes.

While reducing the workforce may be necessary sometimes, there are ways in which you can do so without laying staff off. We’ve discussed three such alternatives, with strategies allowing an organisation to maintain flexibility and adapt to ever-shifting economic conditions while keeping employee morale up and maintaining steady levels of productivity. These alternatives to layoffs do require careful planning and ongoing evaluation, to ensure they align with the company’s goals and objectives.

The key takeaways are:

• Layoffs are a challenge for the HR department, potentially having a negative effect on both employees and the company.
• Outplacement services reduce the risk of lawsuits during layoffs, as well as protecting the company brand.
• Offering furloughs as a temporary leave of absence for employees provides cost-saving benefits for companies while keeping hold of experienced staff.
• Reducing the pay of executives can combat the need for layoffs, as long as this is implemented transparently and as a temporary measure.
• Implementing hiring freezes or relying on attrition allows companies to reduce costs and the size of their workforce over time, without the need for immediate terminations.

If your organisation is looking for support during a workforce reduction event, we’re here to help. Do contact us or check out Careerminds’ outplacement services for support during the process.

Elizabeth Openshaw

Elizabeth Openshaw has over 12 years of experience in the job search sector, including extensive expertise in outplacement and CV reviews. Previously a Journalist on national publications, she is Director of her own company, OpenDoor CV Expertise Ltd. You can connect with her at Elizabeth Openshaw | LinkedIn.