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Decreasing Labor Costs Without Layoffs

At a time when the nation’s economy is softening, and perhaps worse, many organizations are considering layoffs as a way to cut costs.  But eliminating jobs does not always result in immediate cost-savings. There are often severance packages to finance and unemployment benefits to cover.  In addition, the morale of the employees left behind always suffers. 

There are ways to decrease labor costs that can save jobs, however.   And, in many instances, these strategies can save money immediately, keep unemployment insurance rates down, improve or at least maintain employee morale and save jobs.  You can also keep the brain power, the talent that you have worked to recruit.  Here are a few options to consider before implementing involuntary staff reduction.

Temporary Staff:  Utilization of temporary staffing is often kept separate from regular human resource budget management.  But there are often many dollars to save here.  Temporary staffing agencies are charging a premium rate for each hour of work performed.  While it can provide flexibility for the organization, it is often not an economic way to get work done.  And cutting back here does not require payment of unemployment benefits.  As a result, this is a great starting point for etching away at the cost cuts that are required.

Overtime by Non-Exempt Staff:  Do you have full time non-exempt staff who are working overtime on a routine basis?  Cut out all overtime for a savings of 1 ½ times the hourly rate per hour of work.  Again, potential for great savings without cutting jobs.  Just be careful.  You must cut out the additional work hours as well as the pay.  You can not just eliminate the payment of overtime.  If non-exempt employees work the overtime they must be paid or you run the risk of being non-compliant with the Fair Labor Standards Act (FLSA) .

Compensated Overtime for Exempt Staff:  Have you negotiated special circumstances where you will pay overtime to some of your exempt staff?  Or are there certain departments or job titles for which you pay above salary for additional hours?  Not only are you incurring additional costs, you are also putting the organization at risk for losing the exempt status of these individuals.  Take a look at any special pay policies that you have for your exempt staff.  Use elimination of these policies as an opportunity to save money and reduce the risk of FLSA non-compliance.

Part time Employees Working Beyond Normal Hours:  If you have employees who are budgeted to work 20 hours per week but who routinely work 40 there is, once again, opportunity to save money without eliminating jobs.  Take a look here.  This is often a hidden cost.  If you are just looking at FTE (Full Time Equivalent) reports rather than actual hours worked you may be missing the boat.  Work with your finance department and encourage them to look at dollars and hours rather than just head-counts!

Per Diem or Contingent Employees:  If you have employees who have zero budgeted hours but are to fill in where necessary it is, again, important to look at actual hours worked rather than just head-counts.  These individuals do not represent budgeted jobs but may be consistently working 20, 30 or even 40 hours per week.  In addition, you organization may be paying a premium rate to individuals who do not have guaranteed schedules.  Cut back here too to save jobs.

Voluntary Reduction in Hours:  You may very well have employees who would love to work a reduced schedule.  Ask!  Even if you can get a number of people to cut their schedules by only one or two days per week, you can realize a great savings.  And, you have saved the jobs of people who the organization has invested in to recruit and train.  You have not drained the brain power of the organization.  And taking this approach can improve employee morale.  You are working with employees and giving them a choice and some say in their future with the organization.  And, you may be giving them the opportunity that they have been looking for, more time for personal pursuits or family.

Allow Employees to Job Share:  This is a great win-win option.  If you need to reduce the number of jobs in a certain area but wish to retain full time coverage for remaining positions then job sharing is definitely worth considering.  In a job share, 2 people work part time hours but in one full time position.  They provide seamless coverage of the job through communication with each other.  In a successful job share clients, co-workers and the organization as a whole work with the team just as if there were one person covering the full time job.  The organization has saved talent, continues to enjoy full time coverage and is now enjoying the benefits of 2 heads rather than one to get the job done.

Consider implementing or increasing telecommuting opportunities:  This option does not have direct labor cost savings but can help with the indirect costs of labor; housing the labor and providing equipment.  If employees  work from home the organization requires much less office space on-site.  Employee offices can be converted into rotator offices utilized by multiple employees who work on-site on different days.  In addition, in many instances, employees supply their own basic equipment for a home office. 

In the long run, many studies also indicate that providing telecommuting as a work option will increase productivity and decrease turnover.  This also results in cost-savings, as much as $10,000 per year per telecommuting employee according to a study sponsored by AT&T.

We are facing challenging times.  Organizations need to be flexible and look long term.  Draining talent pools and lowering employee morale can alter the organization over the course of years.  Consider some of these options as you create your labor cost reduction strategies.  The organization may very well find itself better off not only in the short-term but down the road as well.

Kirsten Ross is mother of two sons and is a Certified Human Resource Professional (SPHR) dedicated to helping women achieve more life balance and to transforming the design of work.

Visit at to search our revolutionary flexible work job board featuring more than 35,000 fresh work from home, part time, job share, flex time and telecommuting opportunities, search for a job share partner or read valuable career, life balance and family articles.  You may also email her at



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