To Lay Off or Not To Lay Off

Today we look at the area of cost cutting related to staff which for most companies is the largest single item in their profit and loss.

There is no doubt that cutting the size of staff has the advantage of reducing wages, salaries and staff benefits i.e. canteen, uniform, etc.  If business as a whole has fallen then laying off staff that would otherwise have nothing to do makes sense.  The recession also provides another advantage in doing layoffs in that the company can choose to get rid of persons who are unproductive.  One should not wait for a recession to deal with unproductive persons but it does provide an opportunity.  In addition a cut in the size of staff may also lead to a reduction in the office space that a company needs and could reduce the cost of rent.  Staff layoffs can provide an opportunity for a company to survive a lean time so that it can be around for the future.

However there are some distinct disadvantages to letting staff go.  Often times in order to save the most money a company will make redundant its most expensive staff.  The disadvantage of this is that these are the most qualified and often most productive people.  When the time comes to rehire persons, suitably qualified experienced people may not be available.  In addition persons may not be willing to work for the company because there is a sense of little job security.

There is a danger of cutting too many staff resulting in the remaining staff being overworked and stressed.  This can lead to demotivation among staff and can result in productivity dropping significantly.  In addition there is an increase in the level of sickness as members get tired and become more susceptible to illness.  A further problem may arise if too many staff are cut as the internal controls may become weakened.  It is much easier for collusion to take place as reconciliations tend to fall in arrears.  Staff become aware of these situations and find it easier to commit fraud especially if they feel overworked and under appreciated.

It is not an easy thing to decide whether or not to lay off staff and it provides a good opportunity to discuss the company’s situation with staff.  The people who do the work daily are often times the people who can best advise you on cost cutting or other alternatives.  Involving staff in the decision will also lead to increased morale as staff feel like important members of the company.