In soft economic times cutting back on payroll usually means laying off employees. As a tactic it works, but this strategy reduces your productivity and can end up costing you in the long run. You will have lost any investment you made in their training, lost their knowhow and will be stuck with the cost of hiring a replacement sometime in the future when business starts to pick up again, so avoid it if you can. If laying off employees is the only option, give careful thought to how you can maintain production and customer service so as not to plunge into a downward spiral of poor service leading to increasing customer desertion. Here are some suggestions for how to slim the payroll burden.

Slim the payroll

Reduce pay and eliminate raises: a reduction in pay won’t be popular but if the alternative is redundancies among the employees they might well agree to go for it. At least they keep their job (and you save on payroll) until business picks up again.

Cut back on work hours: this will reduce payroll without entirely losing the employee. This can be done by decreasing daily hours or reducing days per week or moving to so many days per month. A reduction in hours may be viewed as preferable to having no job whatsoever. Sharing the pain out among employees will be better for morale and you get to keep people on hand for when times improve.

Replace monetary with nonmonetary incentives: offering the use of your vacation home or extra time off in lieu of a money bonus can show that you understand your employee’s disappointment in not receiving a cash bonus but want to reward them for their hard work.

Encourage employees to take time off without pay: canvass employees for those who would be agreeable to taking a period of time off work without pay. The deal must be that they are guaranteed their job back at the end of the specified period.

Incentivize employees to leave: the least unpleasant way to downsize is to let natural attrition take care of the job by not replacing employees who quit or retire. If normal attrition will be too slow to reduce numbers to what you need/can afford, then offer employees an incentive to terminate: grant early retirement with full retirement benefits or offer an attractive severance package. Make clear this is for this occasion only.

Make use of independent contractors: hiring is a long term commitment. Until things improve, soak up extra workload using independent contractors instead of putting on workers.

Insource: maybe some jobs you are currently outsourcing can be economically brought back into the workplace to be done by underutilized employees. Be careful not to breach employee or supplier contracts. Do this only if there is a distinct cost/benefit advantage over the outsourcing deal.

Used with permission from RanOne Inc., McQuaig & Welk, PLL are licensed RanOne Consulting Group Members.