Business BriefMy existing workforce is made up of 10,000 workers, each having skills valued at $40,000 per year. The plan calls for the laying off 500 employees. My supervisor has tasked me with evaluating the situation to determine length of time required for payroll savings to recover restructuring cost.AnalysisWhen a company conducts a layoff, there is a price to pay in the short run for getting costs. Besides a severance and benefits package, employers will pay out accrued vacation and outplacement-services fees. There are other short-term costs to consider. Managers have to take the time to sit down and break the news to employees, to assemble paperwork, to reallocate work to remaining employees, to train those survivors how to do the work they've absorbed, and to handle other employee issues directly related to the layoff all of which eats managers' and administrative staffs' time and, therefore, money.The effects of layoffs on surviving employees have a l ...view middle of the document...
The most ludicrous thing I've seen is that companies might make the balance sheet look good in the short term but later have to hire people back. In essence, the cost savings only last as long as the company doesn't need to rehire employees, and in most cases, that's not a long period of time. The majority of companies that lay off employees find themselves back to pre-layoff employment levels within 18 month. Rarely do companies see any long-term benefit from employment reduction.Looking at the implications of layoffs in the long term reveals some hefty costs to the company, especially if the organization decides that it needs to rehire employees. The company will pay a premium price for attracting valuable replacements, including the cost of recruiting and screening candidates. An employer also will have to orient new employees and make supervisors available to offer additional guidance and support while those employees get up to speed.There is an economic-opportunity cost incurred, which is the difference between the productivity the company would have enjoyed had they retained the laid-off employee and the productivity of the replacement while he or she is learning the job. Costs can run up to an amount equal to two or three times the annual compensation of the person laid off and is an additional cost above and beyond the annual salary of the replacement.Beyond the sizable expenses associated with rehiring employees, there is the cost a company incurs when laid-off employees collect unemployment insurance. When the unemployment insurance account is reduced, a company's tax rate increases to build the account back up. Though the increase doesn't occur during the layoff year, it generally takes place over the next few years until the business's unemployment insurance account reaches its pre-layoff rate.Lastly, there are less tangible costs, which include low morale, lost innovation, fear of more layoffs, angry customers, and lost market share. So does it really pay to lay off employees? At first glance layoffs seem to be an easy fix, but they don't appear to be a strategic initiative that pays off in the long run.ReferenceKrajewski. & et.al. (2012). Operations Management. Custom Edition for FranklinUniversity. Boston, MA, Pearson Education Company.
