Advantages & Disadvantages of Different Ways to Reduce Staff

Workforce reductions are rarely an easy endeavor for a business owner or manager to undertake. Whether the reduction is driven by a downturn in the economy or industry, or the obsolescence of a product or service, the decisions surrounding the reduction are not easy. There are ways owners can approach a reduction that are humane and supportive. There are also highly expedient ways that significantly disrupt employees' lives.

One way to reduce staff is to find another job for the employees who you will lay off. The advantage of this is that your employees can maintain wages similar to what they had and avoid needing unemployment. You build significant goodwill, and, for valued employees, increase the likelihood that employees will return when your business outlook improves. A major disadvantage is that finding jobs for others could be extremely time consuming, taking valuable time and effort when you need to focus on your company's needs.

If your business cannot support higher-level staff but still has funds to support staff at a lower wage rate, you can ask employees if they would take a demotion and pay cut. If you are shutting down a business line, you can transfer some employees to another area. The advantage is that employees would still be available to do the company's work. In addition, you will not need to re-hire when business improves. The disadvantage is that while you reduce expenses, you do not reduce them as much as you could if you laid off the personnel.

If your company uses independent contractors, review those services to see if employees could fill those roles, either immediately or with limited training. If the employees can, you can terminate or not renew the external providers’ contracts and reposition your employees to provide the services. The advantage is that terminating contractors is typically less costly and less emotional than terminating employees. In addition, you create goodwill with your employees. A major disadvantage is that employees may not be as productive as the contractors in their new roles.

If you do not have the income to support employees, a layoff may be your only option. The advantage is that you quickly reduce your costs by the number of employees laid off. Reduced costs include salaries, benefits, perks and administration. One disadvantage is the near-term severance costs resulting from severance packages and administrative costs. Another disadvantage is the emotional distress many people experience when they lose a job. If you have good relationships with your employees, you may also experience stress and guilt.