By Kevin Dearden, CPA

Layoffs may seem like a cure-all for lack of work, but don’t move too quickly to slash your employment roster. You may need these employees when work picks back up, and there’s no guarantee you’ll be able to get laid-off workers back. Sudden job cuts can also hurt the morale of your remaining staff. There may be other ways to deal with the problem.

Calculate the cost

To establish the extent of the predicament, you need to calculate the cost of your employees. One good way is to determine each one’s labor burden cost per production hour.

This rate is generally calculated by dividing a worker’s total employment costs by his or her number of actual production hours. Actual production hours exclude not only idle time but also time such as vacation days and training time. Total employment costs include not just wages but also expenses such as payroll tax, workers’ comp costs and benefits.

Work with your CPA to perform these calculations. Your goal is to know how much both active and idle workers are costing you. Aim to factor these labor burden costs per production hour into your budget.

Attack the problem

If you find that idle workers are costing your company too much and would like to avoid layoffs if possible, pay cuts are one option. Many employees will accept a drop in pay to retain their jobs. Specifically, you might convert project managers to shop workers and pay them at a lower rate.

Another possibility is a flexible work program under which employees share jobs on a part-time or project-by-project basis. Going a step further, you could furlough certain workers for a given amount of time under the intention of bringing them back when you can provide them with more work.

You might even loan employees to friendly competitors — as long as everyone abides by the “no stealing” rule. Yes, some subcontractors have done this.

Do what you must

Many of your employees may have worked hard for you for a long time and are trying to make ends meet themselves. But neither ownership nor staff benefits from a defunct company. So look for ways to mitigate your workforce costs up to and, if absolutely necessary, including layoffs.