Planning for workforce reductions in an age of inflation

With inflationary pressures and lingering fears of a recession, 2023 has seen layoffs in nearly every sector of the economy. But layoffs have their own price tag, which often includes severance payments to affected employees, loss of institutional knowledge, diminished employee morale, and reputational harm. Before committing to a reduction in force, employers should consider alternatives like pay cuts, eliminating benefits and perks, offering early retirement packages, or implementing furloughs. If layoffs are necessary, advance planning is vital to achieve the company’s cost-savings goal, reduce the risk of legal claims, and minimize the impact on the company’s residual workforce and its reputation. Employers are well advised to consider the following best practices.

Best practices if layoffs are needed

Establish a clear objective for the reduction in force. Before even considering who will be affected, you must identify the goal you seek to accomplish through the layoffs. Most of the time, the objective is a specific cost-savings metric, but it could be a restructuring of operations to enhance efficiency, the elimination of a plant or a product line, or right-sizing following an acquisition. Identifying a specific objective will guide decision-making throughout the layoff process.