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Refreshing Insights

Have suppliers doubled their material costs? Are revenues down? Maybe you lost a major customer? Even the most successful companies can experience occasional periods of unforeseen financial difficulties. When that happens, the last thing you want to do is layoff your valued employees.

While reducing your workforce is sometimes the only solution, consider looking closely at the following five options before you take that step.

1. Freeze Hiring

A hiring freeze can help cut overall business costs by allowing non-essential positions to go unfilled for a period of time until finances improve.

During this time, a company can look for opportunities to consolidate its workforce, cross train employees into other areas or possibly restructure to improve efficiencies. Some employees may need to work extra hours or take on extra responsibilities.

While a hiring freeze will help in the short term, it’s important to give employees an idea of how long the freeze will last. If a freeze lasts too long, it can affect a company’s culture, morale and retention rate.

2. Freeze Salary and Benefit Increases 

Through the years, your employees may have become accustomed to regular salary increases and bonuses. When financial difficulties arise, however, suspending wage increases for a period of time could be an alternative to laying off employees.

Open and honest communication with employees about your company’s financial situation (including a plan and timeline for turning things around) is critical to foster understanding.

Additional considerations could include taking a look at costly benefits and other perks, such as company vehicle usage, costly company parties and miscellaneous reimbursement expenses that add up.

3. Reduce Hours and Overtime

Non-exempt employees may be willing to reduce their hours or restrict overtime to help reduce labor costs for your company. Some states have even adopted shared-work programs that allow two employees to temporarily reduce their work schedules to complete a job that would normally be for a single full-time employee.

4. Voluntary Layoffs or Furloughs 

Employees can be given the option of taking a voluntary layoff without pay. An employee who comes to an agreement with an employer and is voluntarily laid off and/or voluntarily quits may qualify for unemployment benefits depending on the circumstances.

Some companies issue mandatory unpaid leave (a furlough), which can be a good short-term option. Employees generally take short leaves—a day each week or a week at a time—to bring down costs. More extended leaves or unpaid sabbaticals might be appealing to some employees who want to travel or have other interests they want to pursue.

5. Early Retirement

Encouraging voluntary early retirement and/or offering early retirement incentive packages (ERIP) is also an option, especially for those employees who may have initiated retirement discussions previously. The key factor here is that the employee must be ready and willing to retire.

The Age Discrimination in Employment Act (ADEA) specifically forbids employers from terminating an employee aged 40 and over based on age. An early retirement agreement must include a legal contract in which the employee knowingly and voluntarily waives his or her right to age discrimination claims.

Compliance and Anti-Discrimination

No matter which options you chose, you need to make sure you are compliant with all local, state and federal laws that apply to the situation.

Employment separation or reductions in pay or benefits are often stressful and emotional experiences for employees and tensions can run high. Even when you have the very best intentions, simple HR errors can put your company at risk for claims of discriminatory employment practices.

Proper planning, communication and documentation are critical. It can be difficult for even the most seasoned HR professional to navigate all the requirements of downsizing a workforce or limiting hours or benefits. Partnering with an HR consultant or employment attorney for guidance and support can help you through the process.

Looking to Identify Your Potential Risks?

McCloneHR can help! From compliance guidance to payroll processing, our HR team has your team covered! Contact us today to learn more about our HR outsourcing services or download our HR Best Practices Checklist and make sure you’re not missing any key HR responsibilities.

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A collection of articles from the McClone team with the helpful knowledge and insights to ensure your organization is well protected.