As surely as the word “layoffs” have become part of nervous break room conversations in companies across the country, enterprising employers have sought out creative alternatives to the standard layoff regime of cost-cutting. Using tactics such as hiring freezes, offers of unpaid leave, shortened workweeks, and even pay cuts, employers may be able to avoid layoffs entirely.
Some of the benefits of these alternative tactics include preserving a sense of employee security and morale, reducing the perception of vulnerability in the marketplace, saving on unemployment costs, and continuing to get the job done with a trained and capable staff. Of course, even these plans aren’t foolproof, so there are precautions businesses should take before exploring them.
HR Hero Free White Papers: Downsizing: Getting It Right from Termination to Engaging the Survivors and 5 Alternatives to a RIF
Employers should ensure that hour- and/or pay-cut decisions are applied fairly and aren’t based on any discriminatory grounds. Businesses aren’t necessarily required to apply all pay or hour reductions across the board, although that may be the most painless and guilt- free means. However, employers are required to reduce hours and/or pay without regard to age, disability, or any other protected class (e.g., race or gender).
If a company chooses to cut back hours or pay selectively, it should carefully document its reasoning for doing so, as well as its reasoning for which employees will participate in the reductions. Or, particularly for reduced hours, employers should consider asking for volunteers — businesses could have the dirty work done for them if some of their employees have been considering the benefit of a part-time work schedule.
Finally, remember that reductions in pay and work hours are classic examples of adverse employment actions. Thus, businesses must take additional precautions if their work reduction plan affects an employee who has requested leave under the Family and Medical Leave Act (FMLA), has participated in a complaint or investigation of discrimination or harassment, or has engaged in other activities expressly protected from retaliation.
Employers of unionized workplaces must consult their collective bargaining agreements before cutting employee hours or instituting reduced workweeks. Companies may be required to get consent from the union before making such changes, and they may be subject to contractual notice requirements.
What about exempt employees?
Exempt employees and the idea of cutting hours or wages is an almost terrifying tangle of intricacies.
For non-exempt employees, employers can reduce hours and pay so long as they continue to keep track of all work hours and pay at least the minimum wage for any hours worked. With exempt employees, however, reductions in hours and/or pay can easily result in the loss of their exempt status. For instance, if a company reduces an exempt employee’s salary below $455 per week, it will lose the exemption. Further, if an employer attempts to reduce an employee’s salary based on an equivalent reduction of work hours, it may also risk losing the exemption since that type of calculation creates a presumption that the employee is really working on an hourly basis anyway.
If businesses simply must cut costs when they have exempt employees, their safest bet is to implement a wage cut across the board without regard to the number of hours worked. Once a company start tracking hours for exempt employees, even as a means to proportionally cut back salaries, it risks losing those employees’ exempt status. Also, if an employer is cutting salaries for exempt employees, it’s important to check state wage laws for relevant notice requirements.
Before proposing a plan of reduced hours to employees, businesses find out how, if at all, their benefits, including health and dental care and 401(k) eligibility, will be affected by going to a part-time schedule. If an employer is forced to cut some employees’ hours back to the extent that they no longer qualify for health benefits, it should consider contributing to a portion of the employees’ COBRA premiums for a limited time.
Also keep in mind that reductions in the standard workweek — from a 40-hour week to a 30-hour week, for example — may affect the amount of FMLA leave to which employees are entitled as well as the amount of leave actually used when and if employees need it. This calculation is especially important if an employer has employees taking intermittent FMLA leave.
Don’t forget that businesses aren’t the only ones knee-deep in budgeting and frugal living these days — employees may be devising creative ways to make ends meet in their home lives as well. So why not tap into their insight and ask employees for suggestions on reducing costs in the company?
Employers should be honest with employees about their options. Don’t overinflate the costs that must be reduced, and don’t use scare tactics. Also, don’t set unrealistic goals and declare that they must be met to avoid layoffs or hour reductions. If a business knows it can’t avoid cutting hours or jobs, it shouldn’t pretend that a bit of penny-pinching in the office will save the day or it will risk losing its employees’ trust.
Instead, present realistic expense amounts and encourage employees to identify unnecessary and easily eliminated waste in their own departments. Employers may even go a step further by offering incentives such as a percentage of savings to the most frugal employees.
Unfortunately, even the best cost-cutting plans may not work out for all staff members. Even minimal cuts in pay or work hours may be more than some employees’ already-strained budgets can handle. As a result, employers may still end up losing valuable workers. However, keep in mind that a full-fledged reduction in force would certainly result in lost employees, while these alternatives may be just enough for trained and talented staff to weather the storm with their employer.
HR Executive Answers: Downsizing Toolkit