Finance News & Insights

5 ways to reduce payroll without layoffs

Cutting back on payroll doesn’t have to mean laying off employees — which could end up costing you more in the long run.

When margins are shrinking, laying off some employees sounds like a quick fix. But what about the time and money spent training them, not to mention their future replacements once you need the spot filled again?

Another factor to consider: When a company lays off a few employees, they usually lose more than they bargained for when well others start jumping ship soon after. Not to mention the potential for lawsuits that claim discrimination or retaliation.

There are alternatives that’ll still slim down payroll but keep your staff intact.

  1. Instead of hiring an outside company for tasks you normally outsource give the task to current employees. It’ll save you a bundle and keep them busy. Let them know the jobs that need to be done and find out if there’s anyone who has a particular skill that matches. Some employees will balk at the idea of taking on new responsibilities. But as long as they know it’s only temporary, and it doesn’t go against a signed contract, they’ll usually pitch in — they might even like the change of pace.
  2. When bonus time comes up and money’s tight, try switching things up. Instead of offering a monetary reward, look into nonpayment incentives. Use of a vacation home or an extra time off would be a reward that doesn’t cost much. Some employees may be disappointed by not having a bonus, especially if it’s a regularly scheduled one. So let them know ahead of time that this time they won’t be getting a check, but it’s only temporary. That way the disappointment will be kept to a minimum and they won’t have already made plans for the money they thought was coming.
  3. Reducing employee hours — and pay to match — can greatly reduce payroll without sacrificing your staff. It’s better for morale and the long-term outlook of the company to keep people on hand. And they’re likely to see a reduction in hours as a much better alternative than having no job whatsoever.
  4. Some employees may be able to handle taking time off work without pay. Ask for volunteers who’d like to take a leave of absence. Designate a specific amount of time for them to be on sabbatical and make sure everyone understands that they’re guaranteed their job back at the end of the period.
  5. A reduction in pay probably isn’t ideal for any employee, much like a reduction in hours. The result’s similar — you get to keep all of your employees, they keep their job and you save on payroll. They may actually see this as harder to take than a reduction in hours, since they’re still working the same amount of time but for less money. But if you need 100% of your staff at the office at all times, it could be a viable option.

The best rule of thumb for any change that’s going to affect employees is to be honest with them about why you’re doing something and that the change is only temporary.

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