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How to avoid layoffs and still be profitable

How to avoid layoffs and still be profitable

If your company's revenue starts to falter, payroll may be a place you look for spending cuts. But before opting for layoffs as a quick and easy means of recovering profitability, consider this: the decision to lay off employees carries its own set of costs.

For example, the more people who are laid off, the more remaining employees may find reasons to seek employment elsewhere. If skilled and productive workers leave the company, product quality and customer service may suffer. Those left behind may feel overworked and suffer from diminished morale, which can lead to production errors. Certain direct costs, such as severance pay and unemployment insurance rates, may actually increase. And when business picks up again, your company may incur additional costs to hire and train new employees. In the long run, layoffs may actually hurt profitability.

So before taking steps to reduce the size of your workforce, consider these five alternatives for reducing payroll and overhead expenses:

  1. Curtail nonessentials. Temporarily suspend company-provided meals and transit subsidies. Reduce travel and overtime as much as possible. Postpone buying the state-of-the-art equipment you'd like.

  2. Reduce work hours. Go from a five-day workweek to a four-day workweek to cut payroll costs by 20 percent. Give employees unpaid leave time, especially during school holidays.

  3. Hire interns. Some students may need to complete an internship to graduate from college. In exchange for college credit, they may be willing to work for minimal pay.

  4. Offer sabbaticals. Challenge your established employees to step away from the office for a period of time at reduced pay to attend training.

  5. Consider a virtual office policy. Perhaps some of your employees can work from home, enabling you to free up office space and the associated leasing costs.

Above all, keep your staff in the loop. Let them know why you're making changes. Communicate the benefits of any short-term cuts, and stress your desire to avoid layoffs whenever possible.

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