Do Layoffs & Cuts in Pay Damage Employee Loyalty & Morale?
When your business is having cash-flow problems or expenses are on the rise, you might look to one of your largest expenses, employee payroll, as a place to start balancing the books. While this can bring relief to the bottom line, the gains can be misrepresented. Employee morale and goodwill are strong assets to a business, and they are impacted by payroll-based budget cuts.
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Communicate
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Employees want to be involved and know the direction that their company is moving. The uncertainty surrounding a company's future will cause stress and lead to low morale and lost productivity. The best approach is to communicate honestly and openly with your employees. While you shouldn't share all of the details about your balance sheet, explain the difficulties that the business is experiencing. Communicating sincerely and honestly could reverse some of these problems as well by creating a sense of community and teamwork, bringing people together to trim expenses and solve business problems.
Lost Productivity
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Payroll-based cuts can cost the company in terms of lost productivity. Bill Bliss, founder of the human resources consulting firm Bliss and Associates, says, "Morale directly affects productivity." He estimates that each person laid off will cost the company 50 percent of the employee's pay and benefits for each week that other employees are performing that work. And sometimes there are no net savings when an employee is laid off if that position remains unfilled. Consider carefully if you cannot only manage without a laid-off employee but if you can afford the lost productivity of those who worked with him daily.
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Administrative Resource Drain
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Many leaders do not consider the short-term costs of layoffs as well. Managers must complete paperwork to discharge an employee. They also have to take the time to let the employees know that they are being laid off and reallocate the workload. They must also train the other employees to do the work of the terminated employee. This all takes resources and can impact the manager's morale as well. Evaluate whether the drain on your administrative resources is worth it before you lay off employees, particularly if it is just for the short term.
Ramping Back Up
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If payroll-based cuts are unavoidable, make plans to gain the momentum back when economic conditions improve. As soon as possible, restore the salaries of employees who have had to endure pay cuts. Provide them with a date that you will target for this when you first cut their salaries, and do your best to abide by it. Employees will see that you are acting in good faith with them and will feel much better about their jobs and more loyal to the company. As business improves, provide pay raises to employees to compensate them for their loss in income.
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