When a company is making large losses, laying off employees can be an attractive option for cutting costs. In addition to wages, the organization will save on health care insurance, office space, overheads and a host of other expenses.
But when a large number of workers are asked to leave, the repercussions can be disastrous. The remaining employees will feel demotivated and consequently productivity may fall. The company could also be exposing itself to time-consuming and expensive litigation by laid-off staff members.

If it is at all possible, organizations should avoid layoffs. They can consider saving on employee costs in several other ways.

Cutting down on senior management

Top level managers who are not pulling their weight in the company can be asked to leave. The cost of a single senior manager would be equivalent to several lower level employees.

Consider a new line of business

While this may be impractical in many instances, it could offer a solution in certain cases. Well-trained and experienced staff who are to be laid off could be used to start an alternate line of business.

Sell the loss-making unit

If most of the employees to be laid off belong to a particular division of the company, the option of selling the entire unit could be considered. The agreement with the buyer could stipulate that employees would not be asked to leave within a certain time period.

Temporary layoffs

The company may be forced to lay off staff because of a market downturn or a contraction of demand for its products. Workers could be asked to go on unpaid leave or leave with half-wages and called back to work when the situation improves.

Freeze salaries and cancel bonus payments

This will give some temporary relief. Organizations cannot use this method for more than a year or two. After that, the best people would start looking for other jobs.

Obviously, salary hikes should be stopped across the board and not just for certain categories of employees. If senior management continues to get raises and bonuses, employee morale would nosedive.

Cut non-essential expenditure

Eliminating business-class travel, expensive training programs, company parties, and off-site conferences and meetings could yield substantial savings. It would be useful to ask employees to make suggestions that would result in cutting costs. This would involve them in the process and convey the seriousness of the company's financial situation.

Delay capital expenditure

Of course, machinery and equipment that are required for the company's core operations should be purchased. But the purchase of items that are not absolutely vital should be deferred.

Increase the variable component in the compensation package

This could be done if the company's line of business permits it. For example, a company with a large sales team could switch over to commission payouts instead of a fixed salary. As a result, productivity could increase even if the payout to employees remains the same.

Layoffs may hamper the company's recovery

Companies trying to reduce costs should use layoffs as a last resort. If experienced employees are asked to leave, the organization would need to incur significant expenditure to locate and hire competent staff when the need arises. In fact, the company's return to profitability could be delayed because of its lack of adequate skilled manpower.