Cutting Hours Instead of People

Posted on December 23, 2008 by John Hunter

When financial and economic realities reach the point that labor costs must be cut I believe a good option to consider is cutting hours (and pay) instead of people. Some people will have extreme hardship if the cut in hours and pay is significant, but once you get is a bad situation no answers are likely to be without problems. I would try to offer the cuts to those that want them first. I would likely take an unpaid sabbatical, if offered, and the organization was in financial trouble.

Another way of doing something similar is profit sharing (where costs go down when profits go down). You should be careful how such sharing is designed, it can create bad incentives if done incorrectly. Also by paying a portion of wages as bonuses that expense can be reduced when times are bad without layoffs.


The Rise of the Four-Day Work Week

Like many companies, Pella is looking to cut expenses because of the economic downturn. But instead of laying off more workers, the Iowa manufacturer of windows and doors is instituting a four-day workweek for about a third of its 3,900 employees. Chris Simpson, a senior vice-president at the company, acknowledges it’s an unconventional move… it doesn’t want to be caught short of experienced workers.
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According to the U.S. Bureau of Labor Statistics, the number of employees who normally work full-time but now clock fewer than 35 hours a week because of poor business conditions has climbed 72%, to 2.57 million in November 2008, from 1.49 million in November 2007.

Related: Bad Management Results in Layoffs – Some Firms Cut Costs Without Resorting to Layoffs – Operational Excellence – posts on respect for employees

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2 Responses to Cutting Hours Instead of People

  1. t jefferson says:
    December 23, 2008 at 11:34 pm

    Sure I would take a cut in hours. To save one job with with 10 workers you would have to give up appx 4 hours per week. I make $8.75 an hour, loss in wages would be $35.00. My gross pay would go from $350.00 a week to $315.00. Hell why don’t I just pay these CEOs to work? I already can’t afford the expenses of work ex. gas, food, maintence, clothes. What we need is a liveable wage and less hours. Fair trade not free trade. Universal health care not emergency room hospital care that everybody pays for. Executives need to take the cuts let them join the wage race to the bottom not the workers.

  2. Harinee says:
    January 11, 2009 at 3:06 pm

    I think i would disagree.
    If you consider one employee who is on a project with a deadline to meet, i do not think cutting down on the number of hours would be ideal. This is the time to save atleast the projects you have in hand. At no cost can you afford to dissatisfy any customer.
    Cutting down on pay could be an option though. But getting the employees to understand and agree upon this could be tough.

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