The goal of business is to make a profit and the most expensive item in most business’ budget is staff. So when businesses need to cut costs, they often turn to laying off people.
However, the process of terminating employees can be expensive. The Employee Turnover Calculator, an online tool from the Center for Economic and Policy Research and the Center for Law and Social Policy, shows that letting go and then replacing someone who makes $25,000 a year costs $2,746 for recruiting, hiring and training a new employee.
That $2,746 does not include the cost of processing termination paperwork, any severance pay, increased unemployment taxes, continued health care payments and career counseling for those laid off.
These real costs don’t come close to other hidden costs of eliminating jobs – when you do so, you lose institutional knowledge, disrupt teams and increase the workload of those who remain. Layoffs also often result in lowered morale and productivity for remaining workers, adversely affect quality and customer service, and negatively impact the company’s public image.
And layoffs can make future hires less likely to want to work for you. According to CEB’s 2013 Quarterly Global Labor Market research, the top five things employees look for when seeking a new job today are:
- Health Benefits
- Work-Life Balance
So, how to prevent corporate layoffs? Companies that have frequent layoffs are not seen as stable or respectful and, because of the increased workload after a corporate layoff, work-life balance is iffy. It can take months, or even years, to get your reputation back as a good place to work.
Before resorting to a corporate layoff, here are seven things HR departments can try first of ways to prevent corporate layoffs:
- Offer both team and individual productivity incentives
- Explain the situation and ask workers to do more with less
- Reduce PTO like sick and vacation days to increase the number of hours worked
- Redesign jobs to eliminate low value work and duplication
- When an employee retires or leaves the company, assign their work to remaining employees, rather than hiring someone new
- Offer early retirement packages or even voluntary severance packages
- Ask your employees to take a temporary cut in their pay
The June 2013 issue of Harvard Business Review features an article written by Dave Cote, Chairman and CEO of Honeywell, titled “Honeywell’s CEO on How He Avoided Layoffs.” In it, Cote, explains “… look at what really happens when you do layoffs. Each person laid off gets, on average, about six months’ worth of severance pay and outplacement services. So in essence, it takes six months to start saving money. Recessions usually last 12 to 18 months, after which demand picks up, so it’s pretty common for a company to have to start hiring people about a year or so after its big layoff, undoing the savings it began realizing just six months earlier. Think for a minute about the costs of a layoff the way you’d think about a traditional investment in a plant or equipment. Imagine going to your boss and saying, ‘I want to spend $10 million on a new factory. It will take us six months to break even on it, and then we’ll get to run the factory for six months. But at that point we’re going to need to shut it down.’ You’d never do that—yet when it comes to restructuring costs to lay off employees, everyone seems to think it makes sense.
That’s because when faced with a recession, managers find it hard to look ahead toward recovery. If you worry that a recession is going to last forever, you may believe that the savings achieved by a layoff will be permanent. But that’s not really how it works. I’ve been a leader during three recessions, and I’ve never heard a management team talk about how the choices they make during a downturn will affect performance during the recovery. But in 2008 and 2009 I kept reiterating that point: There will be a recovery, and we need to be prepared for it.”