Alternative views to staff cutting in economic downturns…by Diane Heavens



Given the current economic downturn, we have seen many of our clients taking a closer look at staffing levels as employee compensation has a direct affect on the company’s bottom line.  Many employers jump to the conclusion that the easiest and most effective method to reduce costs is to reduce the number of employees on staff.  Depending on your business and how you generate profit, there are many different cost cutting factors to consider before making any staffing decisions.  Often, employees will share the same initial reaction; cutting staff is a good idea because it will not have an effect on their total compensation.  These employees forget that they could be one of the employees let go, and if not, they may see an increase their work load.


Depending on tenure, age, position, salary, and how the employee was acquired, the cost of severing an employee can be very high, and is not as feasible for the company as initially thought.   Paying the minimum amounts as prescribed in Employment Standards legislation is often not considered enough by the employee.  In part this is because they realize that the hot job market of last year, in which they were able to walk across the street to find another job relatively easily and name their price, no longer exists.  


Due to the market changes, we have noticed that many employees are happy to have a job, even if it means taking a cut in pay or benefits. Depending on the demographics of your workforce, keeping a job with reduced pay and having a benefits plan is advantageous compared to having a collapse of their current lifestyle.  Employees have a better understanding that employers need to make some changes to total compensation in order to survive the tough times, and prosper in the years to come.   


Some alternatives to reducing your work force could include:

·         Reducing employee hours of work, thereby reducing pay;

·         Job sharing, employees working half time.


Both of these options would mean that the employee is still making an income higher than they would receive on Employment Insurance and allow them to remain eligible for benefits.


Other methods of decreasing expenses of the employer:

·     Reducing the employer amount of benefits cost split.

·     Allowing employees more freedom to take time off without pay if they are not busy, creating work life balance.  

·     Cutting other benefits that do not have a significant effect on take home pay but decrease their total compensation package

o       Decrease or suspend RSP contributions

o       Suspend or cancel Health Care Spending Accounts

o       Not paying for professional association memberships

o       Reduce or suspend vehicle allowances


Employees will be reasonable, for the most part, if their employer is open, honest, and equitable in their treatment of employees.  As always, you need to consult the employees’ offer letter and/ or employment agreement before making any changes.  Also review applicable Employment Standards.  If you do not review the actual and implied contracts that exist between yourself and your employees and make significant changes to compensation, or end employment, you could find yourself with unmitigated legal problems.