TRYING TO KEEP the lights on is challenging for many small businesses these days. But while laying off employees can save the company the expense of salaries and paying for benefits, such a move is often not the most cost-effective answer.
In fact, layoffs can actually cost your business money, especially if you expect things to pick up once the economy recovers.
“It’s hard to save money if the jobs will be refilled within a year or so,” explains Peter Cappelli, director of the Center for Human Resources at the Wharton School of the University of Pennsylvania. “There are lots of costs of laying people off – severance, unemployment insurance, risks of litigation. And then there are the costs of re-hiring – search, training, productivity losses while waiting for performance to get up to speed.”
So if you can’t save money by letting people go, how can you balance the books? Here are five steps you can take to cut costs without cutting employees loose.
1. Tap into the SBA’s new loan program
The Small Business Administration is making it easier to obtain some of its traditional loans by reducing fees, increasing loan guarantees and relaxing eligibility guidelines. And this week, it unveiled the American Recovery Capital (ARC) Loan Program, which offers loans to struggling small businesses that can prove they’ve been profitable in the past but are facing financial hardship now. The loans are given to businesses to pay down debt, thereby freeing up money for other expenses like payroll. (For more details on ARC loans, read our story.)
“We estimate that we’ll be able to make about 10,000 [ARC] loans across the country,” says Jonathan Swain, a spokesman for the Small Business Administration. However, businesses better act fast. “Based on the interest and the inquiries that we’ve been getting over the last several weeks, we do expect that these are dollars that will get out the door in a relatively short period of time,” he says.
2. Participate in a Shared Work program
Shared Work programs offer partial unemployment benefits to employees whose hours have been cut. Offered in 17 states, these programs have been around for years, but have recently been gaining popularity. In the first few months of 2009 alone, the Department of Labor estimates that Shared Work programs prevented more than 75,000 workers from losing their jobs.
“When employers have to cut back, it provides an option for them, so that when you have workers who have specialized skills [you don’t lose that knowledge],” says Alexandre Mas, chief economist for the Department of Labor.
States have the discretion to design their own programs. In New York, for example, an employee’s hours can be reduced by 20% to 60% to qualify, and they can collect benefits for up to 53 weeks. More than 31,000 workers from over 1,300 businesses are currently enrolled in New York State’s program.
“Our business is seasonal, and we found when we did a generalized layoff, when we were ready to go full-bore production again, generally with very little notice, it was very difficult to get our employees back,” says Pam Thayer, director of human resources at Clarence, N.Y.-based New Buffalo Shirt Factory, where the Shared Work program has been in place for years.