4 Strategies to Try Before Layoffs (And the Pros and Cons of Each) - Glassdoor for Employers
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4 Strategies to Try Before Layoffs (And the Pros and Cons of Each)

Across industries, companies are hard at work planning for the future and preparing to weather COVID-19-related economic changes.

For some businesses, the situation has triggered a company-wide hiring freeze and a massive reduction in force, which contributed to a 33% spike in United States unemployment claims over the course of a few weeks. For others, it’s led to a sudden adjustment to working remotely and even demand for more hiring in remote-friendly or essential industries such as pharmacy and grocery retail and tech support.

And of course, some organizations are in between, with the need to make a decision about their workforce imminent but not immediate.

If your business has the time and resources to monitor the situation and consider alternatives to a reduction in force or specific layoffs, here are three strategies to consider first:

“My business partner and I are actively modeling scenarios to understand if or when we will have to make layoffs. I’m finding I want to avoid the conversation entirely, but I know we will have to make a call at some point.” Senior Partner in a Consulting Firm

Strategy #1: Furlough or Temporary Layoffs

What is it?
A furlough is mandatory unpaid time off work in which employees do not continue working. Temporary layoffs suspend employment for a specific period of time. Both scenarios require employees to stop all work for a company.

Upside:
Furlough essentially “pauses” the pay cycle, allowing businesses to maintain the numbers of staff members and avoid a large cycle of layoffs and new hiring once business resumes as normal. It also typically allows employees to keep their employment benefits like health insurance.

Temporary layoffs act as a layoff that is for a specific period of time, so employees do not receive employment benefits, but are eligible to collect unemployment pay before being recalled to work. These options differ slightly from a reduction in force, which means that an entire department or function is being eliminated from a company permanently.

Downside:
Suddenly pausing employee work and/or pay cycles can be very challenging for employees who must now go without income. Employees with better options may opt to seek employment elsewhere and ultimately leave the company. Employees must also cease all work during a furlough or temporary layoff, which means not checking or responding to email or working any off-the-clock time – if they work at all, they must be compensated.

What else do you need to know?
Eligibility for how and when a company can deploy a furlough is governed by federal law, so make sure you review your situation with an employment lawyer or HR executive before making any decisions.

Same goes for temporary layoffs, as different countries, states, and governments have different requirements. For example, in Ontario and British Columbia temporary layoffs can last up to 13 weeks in a consecutive 20-week period. Whereas in the United States, the requirements of a temporary layoff change depending on your state, the industry and size of your organization, and when different layoff-related regulations like the WARN Act come into effect.

RELATED: If Deemed Necessary: How to Make Layoffs as Compassionate as Possible

Delay Strategy #2: Executive Pay Cuts and Delayed or Reduced Employee Salaries

What is it?
Executive pay cuts occur when CEOs opt to take a temporary pay cut to lower costs, such as how airline CEOs from Delta CEO and United are responding to the COVID-19 crisis. Alternatively, companies are also considering temporarily delaying or reducing employee salaries while employees continue to work.

Upside:
Because CEOs today are often compensated in orders of magnitude more than other employees, temporarily cutting or pausing a CEO’s salary can be an effective way to find a significant amount of money to reallocate within a company.

Delayed or reduced employee salaries free up money in a company so that the company can avoid layoffs and “weather the storm,” while also keeping the business running. It spreads the financial impact of the economic event across the company so that many people are affected a little bit instead of a few people being affected significantly (such as layoffs). It also allows employees to keep their employment benefits.

Downside:
The CEO needs to opt into this arrangement, which she may do out of pressure to contribute to the solution. CEO pay-cuts may negatively impact overall performance. Also, after the company or economy recovers, it may be difficult to adjust the CEO’s salary back to “normal” without negative PR around the CEO’s value to the company.

Similar to a furlough, temporarily delaying or reducing an employee’s salary can lead to economic struggles for employees. It may also result in your best employees seeking other, more stable employment.

“When we went through a downturn at one of my last startups, the executive team all cut our salaries by 25% so we could keep more people on the team through it. Then a month later we had everyone take a pay cut of 10% to keep more people on board. We explained to the team what we were doing and why we did it. There's a lot legally and logistically (from an HR perspective) that has to be mitigated when you do pay cuts and layoffs, so definitely talk to someone who is an HR expert as you make a plan.” - Startup Executive

What else do you need to know?
In no situation can a company retroactively reduce an employee’s pay. All reductions must be made with the employee agreeing and receiving advanced notice of the change.

RELATED: How Glassdoor Can Help You Manage Through Tough Times

Strategy #3: Cut All Non-Essentials

What is it?
Creative companies are ruthlessly cutting all non-essential spending in order to redirect those funds to employee salaries. Some examples include:

  • Suspending all salary increases and bonuses across the organization
  • Eliminating benefits like commuter subsidy, free lunches and snacks, etc.
  • Reviewing monthly recurring expenses to see which tools and services can be consolidated or eliminated
  • Pausing the hiring process for new positions that have not yet been onboarded

Upside:
Cutting non-essential benefits can help your company avoid layoffs, which both retains hard-won talent and benefits morale, especially if the company focuses on benefits and non-essentials that are not being used, such as travel and on-site work perks.

Downside:
Inevitably, any belt-crunching could lead to low morale, especially if it has an impact on an employee’s much-anticipated promotion or bonus or significant benefits or perks. However, these downsides can be mitigated if the cuts are intended to be temporary.

What else do you need to know?
Make sure you’re implementing cuts consistently. If you cancel one promotion or bonus, cancel all of them. If you cut one benefit, cut it for everyone. There’s no room here to play favorites or target employees by any protected status.

Layoffs may be necessary for your company – or they may not be. If it’s a priority for your company to retain its talent during this challenging economic time, consider trying one or more of these aggressive cost-reduction strategies.

Learn More
Glassdoor’s Resources for Employers During COVID-19