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With recession looming, HR can help cut costs

25th Sep 2019
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For some time now, economists the world over have been predicting an end to the global economic expansion that has been going on since the end of the 2008 recession. That expansion has proven durable thus far, but a number of geopolitical and financial concerns seem poised to put an end to the good times. For businesses, that means now is the time to begin planning to enter a defensive posture to ride out the coming economic turbulence.

For HR, this means helping management come up with a strategy to cut costs when the time comes. In doing so, it's vital to strike a delicate balance between the short-term financial needs of the business and the long-term strategic goals that will outlast the recession. It's a challenge that no HR department wants to take on, but one that can alter the trajectory of an entire business if done badly. To make sure that doesn't happen, here's an overview of what HR must do to help their businesses plan for the coming recession.

Solidify Data Collection

The first step to building the most effective (and least damaging) recession plan is to gain a clear idea of how the current organization is working. That means collecting performance data, and lots of it. Performance metrics like individual employee productivity, data on compensation packages, and cost analyses of training programs are a good place to start. Having ready access to accurate data is the only way to make precision cuts to staffing and expenditures without compromising the long-term prospects of the business.

For example, in the last recession, companies were quick to slash training budgets to cut outlays. That' however, isn't always the right move. For example, preserving training programs can help a business prevent a skill-drain in the event a layoff becomes necessary. For example, the money saved by letting a high-salaried employee go can more than pay for training their replacement from within – thus cutting costs without sacrificing capabilities.

Be Clear About What Layoffs Will Cost

The next thing to do is to take steps to analyze the real costs associated with any planned or potential layoffs. These costs aren't always apparent, and can vary significantly depending on where the business is operating. For example, in the US, layoffs can trigger increased unemployment insurance tax liabilities. In that case, it's important to know your state's unemployment tax rate and build that cost into your overall analysis.

Then, it's also necessary to examine the potential costs associated with the aftermath of an employee layoff. In the last recession, scores of businesses faced age discrimination lawsuits as a result of cutting staff. In reality, older employees are often at the highest end of the compensation scale and are thus the most attractive target for cutbacks. If those cuts result in years of costly litigation, though, the business may not end up realizing much savings at all.

Explore Alternate Cost-Savings Plans

It's also critical for HR to consider other means of trimming costs that won't be as disruptive as eliminating staff. One great option is to embrace a shorter workweek for all employees, rather than sacrificing a few to retain the many. Pilot programs for shortened work schedules have produced significant cost savings, and in some cases caused no noticeable drop in overall productivity.

Another creative approach to cutting costs in advance of a recession is to call a halt to employee perks and raises. While doing this can cause a hit to workforce morale, if it is done in a transparent way, it may end up having a positive effect instead. For example, framing the changes as a share-the-pain approach that will reduce the need for layoffs makes it a less worrisome development for employees. In such scenarios, maximum transparency is the key – the more honest the business can be about their bottom-line plans, the more willing employees will be to do their best in support of those plans. That alone makes the effort worthwhile.

Ready for Anything

If HR takes steps now to create a viable action plan to get through a potential recession, they'll be able to act with confidence when the time comes. Plus, it will enable a precision approach that will keep the business ready to emerge from a downturn without missing a beat. At the end of the day, that should allow the company to turn a potential bottom-line disaster into an opportunity for future growth. If the competition fails to do the same, the effect will be magnified further – which is the best possible outcome of the difficult task of preparing for a recession.


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