• Gaurang Bansal

Ways to cut cost in recession - Is Firing the only solution?

As the COVID - 19 is spreading all over the world and complete lockdown of various countries leading to failure of the economic ecosystem. The situation is alarming and is forcing organisations to take tough calls between retaining their workforce and business sustainability.

In the corporate jargon, it is a known fact that “layoffs is the lowest hanging fruit”

But the question remains - Is firing the only solution?

My answer is “No, Layoffs should be one of the last options to be exercised.”

Then what are the other methods to manage cash flows and reduce the manpower cost?

Let’s walk together to list various other ways, which can be explored in combinations to best suit your business to manage these situations:-

5 Important Assumptions

  1. Business operations are affected and so the income, negatively

  2. The organisation has lesser workload.

  3. The organisation is struggling to manage cash flows.

  4. The organisation do not have deep pockets or cash pile to make heavy payouts.

  5. This is presumably a temporary situation.

Considering the 5 assumptions listed above, here are 12 Ways to manage cash flows and reduce the manpower cost

1. Reduction in work timing

Reduce the working hours and a proportionate decrease in compensation. For example, reducing working hours from 8 to 6 leading to a 25% reduction in compensation.

2. Utilising leave balance

Asking employees to utilise their accumulated leave balances, and this will help reduce the liability.

3. Leave without pay (LWPs) for on bench employees

If the on-bench strength is considerable, asking them to go on leave followed by LWP if leaves are consumed.

4. Voluntary pay cuts for the top and middle management

Discussing with the top management and the mid-management team and encouraging them to opt for voluntary pay cuts.

5. Increasing variable component and decreasing fixed remuneration

Revising the salary structure to increase the variable component while trying to keep the overall CTC same.

6. Reduction in salary

Taking a company-wide decision for reducing the CTC by a percentage. In this step, every step should be taken to protect the wage labours and employees in lower cadres.

7. Shifting salary revision cycle

Salary revision is different from performance review, so an organisation may opt to carry out individual performance review as planned however delaying or shifting the coming salary revision cycle.

8. Delaying payout cycle (part amount or full amount)

The usual payout cycle is the end of the month, delaying it by 10 days every cycle may lead to creating 1 month of reserve in 3 months.

9. Moving from permanent to a fixed-term contract

Converting part of its workforce to a fixed-term contract in place of a permanent contract, it is better than layoffs and helps manage variable workloads.

10. Reduction in allowances (travel, overtime, relocation, food, and conveyance, etc)

Consider putting temporary restrictions to reduce spending on an allowance, or reducing the limits of entitlements.

11. Relocation to optimise work sharing at different offices

Consider relocating part of the workforce to balance the workloads between various offices and sites.

12. Training and re-skilling

Training and res-killing the workforce for multi-domain expertise, so they can be optimally utilised reducing the on bench time.

While dealing with human psychology, considering the needs of our team, sufficient caution should be taken while communicating such decisions.

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