Even during the best of times, organizations can go through phases of restructuring and growth that may require layoffs. Whether it’s due to the needs of the business changing, the industry or market itself evolving, or increased automation making certain roles redundant, layoffs are—unfortunately—a part of doing business.
Of course, the last two years have been anything but the best of times. Statistics Canada reported in June 2020 that “on average, 12.4% of Canadian paid workers aged 15 to 64 have been laid-off on a monthly basis since February 2020”. While these layoffs have leveled off, and in many cases returned to pre-COVID numbers, the ripple effects of such massive labour market changes are still impacting organizations across nearly every industry.
Companies often refer to their employees as their most valuable assets, and it’s true in most instances. However, when times are tough and money is tight, the reality is that organizations may feel forced to scale back. As The Globe and Mail recently reported, “a growing number of Canada’s emerging technology giants are scaling back hiring in the face of worsening economic news as the sector shifts rapidly from a grow-at-all-costs mentality to relative austerity”.
Although layoffs may seem like a necessary evil, research actually shows that they may do more harm than good, both short and long-term.
The Harvard Business Review found “that after layoffs a majority of companies suffered declines in profitability, and a related study showed that the drop in profits persisted for three years”. On top of that, “companies that have layoffs are twice as likely to file for bankruptcy as companies that don’t have them”. Additionally, employees that weren’t let go “experienced a 20% decline in job performance”.
Not only does performance and profitability suffer, but further studies have shown that layoffs actually produce higher turnover—with “companies that laid off 0.5 percent of their workforces experienc[ing] a turnover rate 2.6 percentage points higher than companies that didn’t cut staff”. So not only are layoffs bad for morale, but they’re also potentially bad for business.
There are a number of cost saving strategies that organizations can implement to avoid employee layoffs.
Here are some of the ways you can avoid employee layoffs at your organization:
Cut out extras
Many of the extra perks that are advantageous for hiring and retaining employees are just that: extra. All the nice-to-haves (office snacks, lunches, team events) can be temporarily cut to help the company save money and potentially jobs.
Essential hires only
Hiring and training a new employee costs approximately $1286 per employee per year in Canada. Forbes recommends that organizations freeze hiring entirely if necessary, or “consider reallocating the headcount to other areas of the business that see a greater impact on customer value or business revenue”.
Salary freezes as a last resort
Salary freezes—or the temporary suspension of wage increases—should be used only as a last resort and only as a temporary measure to regain financial stability. If you do decide to temporarily suspend increases, make sure this is clearly communicated to employees. You don’t want employees to be expecting raises at their performance review or their end-of-year bonuses only to not receive them.
The most important thing when trying to avoid employee layoffs is keeping your employees at the centre of your decision-making. Ensure that you communicate with everyone as you make adjustments and do it in a way that facilitates transparency, but doesn’t cause a panic.