Do You Want to Avoid Layoffs? Try These 5 Strategies

Overhiring amongst large corporations has ceased, and now, the tables are turning on the workforce that previously controlled the labor market. Mass layoffs have everyone nervous for their jobs, and while layoff announcements feel like part of the daily news cycle, that’s more for big companies—Google, Meta, Amazon, Nike, and more across the globe.   

As a smaller employer, mass layoffs look different in your organization: like, 20 people versus 2,000. However, layoffs still happen and are difficult to manage logistically and emotionally. If a considerable part of your workforce is cut, that counts as a layoff. 

No one wants to consider their workforce in percentages, like “[Your organization] cut 15% of their workforce.” You may share an office and talk to these employees daily!  

However, to prevent layoffs, we need to cover what causes them. Then, you can use the five strategies outlined below to keep your employees. 

 

What Causes Layoffs?  

Three major factors contribute to layoffs. 

1. National and global economic forces. These are the factors that are totally beyond your control. Things like inflation, which peaked at 9.1% in June 2022 but remains high enough to force difficult decisions at many organizations. Or increasing interest rates, which make borrowing money more expensive and can push some major purchases out of reach. Additionally, the threat of a global recession seems to always lurk around the corner. Money is tight everywhere, and payroll is expensive. 

2. Current or projected financial trouble. Companies may cut back on payroll now to give themselves a buffer against the financial challenges they anticipate. This is why layoffs can sometimes feel contagious. When large organizations start doing them, everyone gets scared, which can lead to more layoffs as businesses worry about tougher economic conditions to come. That’s why your workforce is nervous when Amazon lays off 18,000 employees—while it may not affect them immediately, they assume it will later. 

3. Corrective action due to overhiring. While numbers like 12,000 employees laid off at UPS sound terrifying—and certainly are for those who lost their jobs—it’s important to understand this data in context. UPS laid off many employees because they overhired dramatically due to the rise in online shopping during stay-at-home orders. Other companies that overhired for similar reasons are cutting down on payroll expenses. Amazon, for example, went from 1.3 million employees in 2020 to 1.6 million in 2021 as global quarantines led millions to shift more of their purchases online. As the economy rebalances, some of that growth is bound to level off.

 

5 Strategies to Avoid Layoffs 

If you’re at an SMB, or small to midsized business, you run a tighter ship than major corporations like Google or Salesforce. While layoffs might be for 20 people rather than 2,000, your more personalized hiring process means each hire may have slotted directly into an impactful position. Unlike large companies, SMBs don’t hire en masse just in case—each hire has a purpose. Replacing that personnel will be challenging and expensive if your organization grows. 

So, try these five strategies before you resort to layoffs.   

1. Be proactive. If layoffs aren’t on the horizon for your organization now, that’s great! To keep it that way, consider variable compensation, a strategy that can help make your business more agile in a recession. For each department, create a measurable goal whose achievement would have a positive financial impact, and tie a portion of employees’ compensation—perhaps in the form of quarterly bonuses—to that goal. In sales-related positions, this could align with commissions, but be creative.   

   Including a meaningful but manageable amount of variation in your existing employees’ compensation can give your payroll—which is probably your biggest expense—a little room to expand in profitable quarters and contract in less profitable ones.  
   
   

2. Pause future expenses. If the flexibility of variable compensation isn’t enough to balance your budget, consider a temporary freeze, either in hiring or in current wages. A pause in hiring won’t decrease your payroll expenses, but it will keep them from rising temporarily. And if you do freeze wages, make sure to communicate to employees why the freeze is happening—and when they can reasonably expect it to end. 

3. Downsize something besides people. If cuts become inevitable, it’s tempting to look at the huge expense of salaries and choose to let workers go to slash spending. But payroll is not the only option. First, consider other major bills. Can you put a hold on certain perks? Are there unused supplies or electronics you could sell? Take a hard look at your organization’s expenses and scour the list for options outside personnel. 

4. Redeploy team members. Rather than laying people off, try redeploying key talent. Consider your employees’ skills and experiences, and you might find some who are fit to work in different roles that better use their talents. For example, you might notice an account manager has the perfect outgoing personality and encourage them to transfer to the sales team. In this context, redeploying is a strategy to keep employees who might otherwise be laid off. This can save you money in the long run, as you won’t need to expend recruiting or training costs if you need to find a replacement for their original role.  

5. Minimize damage. Maybe you’ve tried everything else, and layoffs are starting to feel inevitable. There’s still one step you can take before completely letting people go. If payroll expenses simply must come down, try strategies that decrease overall payroll without eliminating any entire positions. This could mean cutting hours, implementing a job-sharing system, or even temporary furloughs. All of these are less devastating to employees than a full layoff—and less likely to leave you short-staffed when the economy and your profits begin to recover.

In some cases, layoffs are absolutely necessary. But your best practice for long-term success is to work diligently to avoid them as much as possible. In the long run, coming out of a tough season with a fully-staffed team will strengthen your company culture, ease hiring tensions, build trust in your role, and help your top talent feel valued enough to stick around longer.

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