Should You Lay Off Workers During Slow Periods?

Laying off employees during slow periods, whether it’s due to seasonal fluctuations or an economic downturn, is an easy way for businesses to cut expenses. But are you costing yourself more in morale, productivity, and loyalty by laying off workers?

Companies have been laying off employees since time immemorial. It’s never pleasant, but firms often believe that they have no option but to furlough some workers to curtail expenses – especially during economic downturns.

But do they, in fact, have a choice?

Some small enterprises think so, because they don’t downsize – under any circumstances. There are no reliable statistics available on the number of small companies that eschew layoffs, but the number is believed to be tiny.

For some firms, offering year-round employment doesn’t make much sense. Chief among them are enterprises sporting roller-coaster sales or those employing low-skilled, low-wage employees who are easily replaceable.

On the other hand, companies that require a highly trained, skilled and productive work force might reap a competitive advantage offering a no-furlough policy. Same for industries where employees are in high demand.

Small firms that shun layoffs report a bundle of bottom-line benefits:

** High retention and loyalty – Good, hard-working employees are highly sought commodities. Once you’ve got them, you want to keep them. Productive workers at a no-layoff company have less incentive to leave when industry competitors, even higher paying ones, can’t match year-round employment. These employees’ loyalty is especially enhanced when they witness the no-downsizing policy first-hand, usually during a soured economy, when many other firms don’t hesitate to dispatch their workers.

** Enhanced esprit de corps, teamwork and productivity – A small enterprise demonstrates optimism and caring by never laying off. That’s inspiring to employees, especially these days, when it seems many companies treat humans as an expense on par with materials and other costs. That good-will gesture makes employees feel appreciated and respected. It also encourages a we’re-in-this-together mentality and a willingness to work harder, longer and more effectively.

** Less absenteeism – It stands to reason: High-morale employees who feel valued and part of a team are less inclined to miss work, arrive late or leave early.

** Improved recruitment – Say you’re a highly skilled worker and you’re debating between a small firm with a checkered employment history or one that has never downsized. With everything else being equal, which company looks more attractive? With waffling prospective workers, the no-furlough policy can be the difference maker. And chances are they will tell their productive friends and associates.

** Superior customer service – Since employees are motivated to stay longer with no-layoff companies, customers benefit; that’s because longer-term customer-service and front-line workers better understand their clients’ needs. Long-time customers and vendors also value an ongoing relationship with employees.

** Payroll savings – This is somewhat debatable, but some no-layoff operators say many employees will accept slightly lower wages as a tradeoff for employment security.

** Overall savings – Yes, paying employees’ salaries year-round under any and all circumstances can be expensive, especially during economic slumps. But the institutional knowledge that is retained, the increased productivity, the reduced recruitment costs and other factors arguably saves companies considerably more in the long run.

Typically, a no-downsizing policy isn’t the only benefit accorded employees at these firms. A sense of community develops that is also often evident in profit sharing, 401k plans and other employee-centric programs. The no-layoff policy also tends to go hand in hand with family-friendly atmospheres.

One such firm in Minnesota offers generous retirement, medical and dental plans. Plus, it hosts many informal get-togethers for the rank and file on the company premises. At an Illinois small enterprise that guarantees year-round employment, the owner makes a point of personally congratulating workers on their employment anniversary date and birthday. The several dozen employees are also treated to barbecue and bowling parties.

During a depressed economy, no-furlough firms keep their employees busy performing other activities. At the Minneapolis firm, workers clean the building from top to bottom, repair production machinery, and paint the facilities inside and out. The owner also uses down periods to cross-train employees, which comes in handy when somebody leaves or the company is short-staffed.

Of course, there are obvious downsides to never furloughing workers. A short-term cash-flow crunch, for one. What small enterprise wouldn’t be tempted to jettison some workers’ salaries during business downturns?

Some employees may also try to take advantage of a no-layoff firm, even if there is no written policy. At the Minneapolis company above, one employee who was terminated for spotty attendance threatened to sue, claiming the firm guaranteed year-round employment. It’s because of such legal concerns, along with competitive and economic uncertainties, that some experts advise against offering a written no-layoff guarantee.

Before resorting to layoffs, companies could consider several other options to save money. For instance, they could institute a hiring freeze. Or, restrict overtime. Some might consider job-sharing, payless holidays or shortened work weeks. Perhaps they could offer employees a choice: Vote for a short-term pay reduction so everybody can stay working, or lay off some of their brethren.

Clearly, furloughing workers is a last-ditch measure for small companies. No one ever wants to do it. But for many firms that have managed to eschew layoffs, it’s a values statement: Their employees aren’t just another expense that shows up on financial statements; they are an investment for today and the future.

Related: Calculating the Human Costs of Downsizing

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