Training Technology

These Cost Reduction Initiative Examples Could Help Prevent Layoffs

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These cost reduction initiative examples may help you avoid layoffs.

Economic downturns, planned cost cutting, company mergers, over-staffing—these are all reasons your organization might be considering layoffs.

While there are cases where a workforce reduction is necessary, employee layoffs have consequences ranging from damage to your company’s reputation to lowered employee morale.

If your company is contemplating layoffs, explore strategies to decrease your overhead before taking action. Use these examples of cost reduction initiatives to guide your approach, and keep employee layoffs as a last resort.

5 cost reduction initiatives that minimize the need for layoffs

1. Institute a hiring or headcount freeze

Implementing a hiring freeze is a stop-gap solution that allows for quick cost savings. Typically, during a hiring freeze, companies will:

  • Halt the hiring process for any non-essential roles
  • Put any requisitions for hire on hold
  • Postpone backfilling any positions vacated during the freeze
  • Not create any new positions

One challenging repercussion of a hiring freeze is that existing employees may have to take on heavier workloads, which can lead to burnout, lower productivity, and—in some cases—resignation.

A more flexible, related strategy is instituting a headcount freeze, where your organization focuses on maintaining its current number of full-time employees. Advantages of a headcount freeze include the ability to backfill any vacated positions and replace low performers with new, high-quality talent.

2. Cut business travel

Whether it’s to attend an expo, finalize a business deal, or simply participate in meetings at another location, many people rack up frequent flyer miles because of business travel throughout the year. According to the U.S. Travel Association, direct spending on business travel by both domestic and international travelers totaled $334.2 billion in 2019. That statistic translates into a lot of reimbursement dollars paid out by corporations, and in turn, strain on business finances.

During times of financial hardship, organizations should aim to reduce business travel by at least half. Leadership should focus on identifying and retaining only the most profitable reasons for business travel.

The good news is that although the employee may not be in the room, they’ll likely still be able to participate in whatever it was they were traveling for in the first place. Webinars and live streaming at conferences are growing in popularity, and many meetings can now be accomplished—sometimes with even greater success—via video conferencing.

Not sure where to look for help with virtual meetings?

3. Encourage employees to work remotely

Another way to quickly cut costs is to shut down your physical office space. Not every worker or business can successfully work remotely, but if it is possible for your organization, it’s an adjustment that can lead to notable savings. Some estimations show that if employees telecommuted for just half of their work week, it would save the typical business up to $11,000/year.

While the price of a lease or mortgage is harder to negotiate down, there are a number of overhead expenses that would subside in the case of empty office space:

  • Utilities
  • Janitorial services
  • Office supplies
  • Kitchen supplies
  • Office equipment
  • Transportation subsidies
  • Rented parking spaces

Pro Tip: Real estate can also be one of your company’s greatest assets. Unused office space can be rented (with the landlord’s consent) or sublet for additional income–list the vacancy online and search the surrounding area for potential subtenants to get started.

4. Suspend retirement contributions and reduce benefits

Tough times call for tough decisions, but eliminating some benefits is preferable to laying employees off. According to the U.S. Bureau of Labor Statistics, benefits cost employers in the private sector an average of $10.37 per employee, per hour worked. That adds up to an average of $21,569 per year for just one full-time employee. These numbers illustrate why employee benefits are one of the first places to look when it comes to cost cutting.

Corporations that offer 401(k) contributions can begin by suspending matching until further notice. From there, financial planners should turn their cost reduction efforts toward eliminating other benefit-related expenses such as pricey dental plans, tuition reimbursement, wellness programs, and even things like company cars, rented parking spaces, and meal or cafeteria offerings.

One thing to keep in mind is that medical insurance should be protected if possible, because it’s an important part of an employee’s personal safety net. Rather than eliminating medical insurance, consider cutting the premium by raising employee contributions and co-pays.

5. Consider a furlough

If all else fails, a final alternative to layoffs is to furlough employees. There are a few different kinds of furloughs, but all of them are mandatory, unpaid leaves of absence that effectively reduce costs. It’s exclusively up to the employer to set the furlough terms.

For hourly employees, a furlough could be:

  • Fewer hours per day
  • Fewer workdays per week
  • Weeks or months long

Because salaried employees earn a full week’s pay regardless of how many hours they’ve worked, furloughs must be established in blocks of at least one week each, and can last for up to a year.

While furloughed employees do not earn wages, one advantage over layoffs is that furloughed employees are still employed, have access to their benefits, and are expected to return to work after the predetermined time period elapses. Furloughed employees may also still be eligible for Employee Assistance Programs (EAPs), a benefit that becomes even more valuable during times of stress or anxiety.

If you don’t offer an employee assistance program, it’s a great time to get started with one.

The bottom line: Communicate and keep layoffs as a last resort

For companies in financial distress, following these cost reduction initiative examples could circumvent the need for layoffs. That said, change (especially of the cost-cutting variety) can incite a range of reactions from employees.

Leadership should actively communicate the rationale behind cost-cutting initiatives to managers of all affected business units throughout the process.

If all of your layoff-avoidance attempts fail to prevent the need for a workforce reduction, be prepared to show documentation of the steps you took to avoid them.

When it comes to managing a team through periods of change, there’s a lot more to learn. We’ve got you covered with these additional Capterra resources:

Looking for Web Conferencing software? Check out Capterra's list of the best Web Conferencing software solutions.

About the Author

Sierra Rogers

Sierra Rogers

Sierra Rogers is a senior content writer at Capterra, covering human resources, eLearning, and nonprofits with expertise in recruiting and learning and development strategies. With a background in the tech and fashion industries, she has extensive experience keeping her finger on the pulse of the latest trends and reporting on how they impact our world. Sierra enjoys cooking and dining out, collecting vintage designer goods, and spending time with her pets at home in Austin, Texas.


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