In these challenging times we are often asked how it’s possible to cut benefits costs. Most employers use cutting salaries as a last resort, preferring not to affect regular net pays and turn to benefits to help reduce expenses.
If you have to cut, what exactly should you cut?
Here’s a quick reference chart which addresses a few main areas that you could consider and some of the pros and cons in each case:
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Pros |
Cons |
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Increase employee’s share of Benefits Costs |
· Immediate cost saving · Coverage is not affected · Change can easily be reversed |
· This affects the employees’ net pay immediately
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Decrease Health and Dental Coverage Levels
&
Decrease Employer funded Health Spending Accounts |
· Does not affect regular salary |
· Will affect net income – increases out of pocket expenses · Employees may not get the healthcare they need – reluctance to pay for previously covered items · Cost cutting not necessarily immediate |
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Retirement Matching Programs |
· Does not affect regular salary · Immediate cost savings · Can be easily reversed at a later date |
· Potential liability for interest lost during a period when matching has ceased |
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Unpaid Vacation Days / Unpaid Leave |
· May be attractive to certain employees on a voluntary basis – especially those wanting to travel or spend more time with family
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· Many employees can’t afford long periods without pay so this may need to be used in conjunction with other cost cutting |
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Vehicle Allowances |
· Does not affect regular salary · Can claim expenses under T2200 to offset costs · Easy to reinstate later and even compensate for previous losses |
· There is an expectation in certain positions to provide this allowance · Could affect retention of employees
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Other Expense Allowances (E.g. Cell Phone, training) |
· Does not affect regular salary · Can claim expenses under T2200 to offset costs · Training – courses could be deferred |
· Postponing training for certain positions may not be an option leaving employees to pay the costs · Other expenses would affect out of pocket expenses for the employee |
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Memberships/Association Fees |
· Does not affect regular salary · May be able to claim expenses under T2200 to offset costs depending on circumstances
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· When used heavily for networking could impact ability to sell service/product · Could result in out of pocket expenses for employee |
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Employee Driven Cuts |
· Gives employees a chance to have a say in what is cut |
· Works best in smaller/entrepreneurial organizations where employees have greater knowledge of financials · Could lead to tension if employees cannot agree |
When undertaking any type of cost containment measure it is important to verify what is specifically stated in employment agreements/offer letters/policy manuals. If the area of cost cutting is addressed in a document then you will need to give sufficient notice to make the change. If you don’t provide sufficient notice then you could have a potential liability situation. So, thorough research into polices and signed documents is a must before making any changes.
While reviewing cost cutting measures, I would also recommend reviewing short and long term incentives. By ensuring that incentives align to corporate strategy and goals you can focus on growth and not just cost cutting. But that’s another blog…