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Experience with reducing employee hours
8

Experience with reducing employee hours

Experience with reducing employee hours

(OP)
To this point in the troubled US economy, my company (HVAC consulting) has been extremely fortunate and remained busy and profittable. Things have recently really started to slow down. Our backlog of work (typically 4-6 weeks) has dried up down to week by week. We are not keeping everyone busy consistently and my partner and I are toying with the idea of reducing work hours. We think the big picture for our company is good and don't want to lose employees but just don't think we'll have steady work for a few months.

The question I have to the forum is if any other employers have experience with this decision. Obviously, anything we decide to do will be based on our specific situation. I'm not necessarily looking for advice as much as experiences. We are a young company and haven't faced this type of decision before.
Did a moderate reduction in payroll/tax (~8hrs per week) do more damage (morale) than good (keeping people busy/overhead reduction)?
Were there side-effects that weren't anticipated?

RE: Experience with reducing employee hours

Other offices in our company have reduced hours.  It's horrible for morale, but employees know what the score is.  If hours are reduced 20% and they still have a job, it's better than one out of five of their neighbors (or themselves) being let go.  And the company is showing they're valuable enough to try to make every effort to keep them.
And unfortunately, it's not like they can go down the street and get the same job.

RE: Experience with reducing employee hours

That sounds more like a recession based  development rather than a employee based development bcause employuees will lose income not a good sign of things to come.


Mathew
Website Design and Development

RE: Experience with reducing employee hours

As an employee who has been let go on multiple occasions, it sucks, but I always found another position within a few months, and I hear the office as a whole rebounded eventually (usually).  As an employee that has had his pay reduced along with everyone else, I would say it destroys moral throughout the entire office.

So, do you want to hurt one person but give the entire company a fighting chance to survive, or do you want to be a "good employer" and try to limp through a bad situation by making everyone in your employ miserable?  Not an easy call...

Dan - Owner
http://www.Hi-TecDesigns.com

RE: Experience with reducing employee hours

It would depend largely on your company culture, wouldn't it?  If your company is run from dictates from up on high, then everyone would tend to be dependent on that for their thinking & planning.  If the culture is more "we're all in this together, pulling on the same set of oars," then the results may be quite different.

I've seen it both ways, I've been on the receiving end of decisions like this.  Personally, I would have taken a pay cut to stay actively employed.  I remember one co-worker who saw his layoff coming and went to managers to ask if he could be reclassified to a lower level ("broom pusher") so that he could remain employed, albeit at a lower level.  Another friend used an opportunity like this to go on 20-hour weeks and pursue his dream of studying for the Ministry.  But he aggressively reduced his lifestyle to fit the reduced income (e.g., living in NC, but refused to run his air conditioner!).  And that's what it's all about, isn't it?  But most folks can't seem to find it within themselves to make the necessary sacrifices.

IMHO the reduced pay could be most acceptable if the employees had a feeling of being involved with the health of the company in deeply troubled times.  AND if pay reductions were across the board...including yours.  Just how far are you willing to go to ensure the long-term survival of your company (which includes loyal, motivated, trained, and competent employees when the corner is finally turned) ?  If I was in your situation, I would pursue that, but actively seek my employee's involvement with the process.  And then I'd try to get creative and seek local or state business development assistance for, perhaps, employee training on the subjects of home budgeting or living on reduced income.  After all, all those fat cats in your government have a vested interest in keeping your employees working, too.

TygerDawg
Blue Technik LLC
Virtuoso Robotics Engineering
www.bluetechnik.com

RE: Experience with reducing employee hours

5
If there are obvious candidates for layoff, it's an easy decision.  The "A" team may tolerate a work hours reduction but only if the deadwood has been pruned FIRST.  High performers do not look kindly on being forced to subsidize their lazy or stupid colleagues.

If you're down to the "A" team, that's a tough situation.  Layoffs of good people or reduced work hours for everybody- either can be demotivating.  If you're REALLY down to the "A" team, reduced work hours would be my personal preference because it is the least disruptive to everyone- unless the whole office are a bunch of interchangeable jobs with no work differentiation whatsoever.  I'd pair that work reduction with a promise, in writing, of a share in profit if and when the good times come back.  That's only fair- you're asking them to forego some revenue as an investment in the future success of your business.  Otherwise, you can expect to see some, probably the best amongst them, using that time off to look for another truly full-time job.

In some jurisdictions, government "work share" programs will cover part of the shortfall for the affected employees. That makes the hit even more tolerable.

 

RE: Experience with reducing employee hours

Keep an eye on labor law-if employees are not paid hourly, you could have trouble paying them for say, 32 hrs/wk rather than 40-you would need to reduce the overall salary and not as an hourly pay rate.

RE: Experience with reducing employee hours

Dont forget to reduce your salary as well. That would make the blow easier to take. But you can be sure that some of your employees would be looking. If they are not already looking.

Peter Stockhausen
Senior Design Analyst (Checker)
Infotech Aerospace Services
www.infotechpr.net

RE: Experience with reducing employee hours

Whatever you do, don't just put some people on part time.  It creates a weird caste system within the company.

Maybe talk about the benefits of a longer weekend if everyone goes to a 4-day week?  Or would that sound patronizing?

RE: Experience with reducing employee hours

Last year, my employer instituted a round of one week layoffs.  Everyone had to pick a week (we actually had the luxury of choosing when to be laid off!).

According to the bean counters, this was more effective at reducing expenses than simply reducing hours.

RE: Experience with reducing employee hours

Some people here than have been put on reduced hours really enjoyed it.  It gave them plenty of free time to find another job.

 

RE: Experience with reducing employee hours

UDP10
If you really are going to have to do this.
 Call an all hands meeting ( everybody no exceptions.) explain the situation,if you think you will have steady work in a few months emphasize that. Then spread the misery around, give everybody a few days on the beach on a random basis. Make sure you keep a tally of who has taken days off, so you can keep it even, at a time like this you do not need to be accused of favouritism. If you have salesmen, do not lay them off, put them on overtime.Explain to the others that these people are essential to getting work. If you have others in your group who do not sell but can do so, get them at it, you need all the help you can get, you may have already done this.
Having said this you are going to lose some people unless you can convince them it is only temporary.
From past experience if you do not do it right you will lose people. If you do it right your losses will be minimal.
B.E.

RE: Experience with reducing employee hours

Also consider bonuses for any employee who brings in a job (you may have to place limitations of one kind or another).

Dan - Owner
http://www.Hi-TecDesigns.com

RE: Experience with reducing employee hours

I work for a small consulting firm and we had a similar situation.

We held a meeting and instituted furlough days (1 a week) with each employee picking their own day. This was a measure to keep us all employed and when things pick up we go back to business as usual.

It's not the best for morale, but we're all going through it together. None of us are job hunting.

 

RE: Experience with reducing employee hours

We had a pay cut for a while last year - though with no corresponding reduction in hours or reduction in work - this was in the middle of several rounds of lay-offs as well.  At the same time they also suspended profit sharing.

This was so stupid to my mind.

What would have been better would have been to say, "we're implementing pay cuts because we don't anticipate making a profit for the next few quarters.  However, we are increasing profit sharing ratio so if we do somehow manage to make a profit you get to really benefit".

I know not everyone thinks like me, and tax or labor laws or union agreements etc. can limit your options, but just throwing this out there.

Whatever you do, chances are folks wont like it and will probably look for alternatives - though in this market the risk of them actually finding something may not be so high.

Posting guidelines FAQ731-376: Eng-Tips.com Forum Policies http://eng-tips.com/market.cfm? (probably not aimed specifically at you)
What is Engineering anyway: FAQ1088-1484: In layman terms, what is "engineering"?

RE: Experience with reducing employee hours


I never had the situation of needing to reduce staff due to a work/economy slow-down, but I think most reasonable people would understand that taking a 20% cut in pay while keeping benefits like health insurance beats the daylights out of being laid off, going on unemployment and paying your COBRA premium.  If your staff do not know this, you can give them the option of mandatory furlough days, or being laid off and give them the financial consequence for each individual.  Explain what their salary will be during the furlough period, and what benefits will remain.  You can even provide them with what their unemployment check will be and what their COBRA premium is.  Do not forget that COBRA premiums are subject to the ARRA 65% subsidy (paid by the insurer) for 15 months.  This includes dental and medical.

Arming them with the information also looks like you are taking an active role in seeing them through the difficult time.

As far as cutting non-performing slackers, I never needed a bad economy to do that.
 

"Gorgeous hair is the best revenge."  Ivana Trump

RE: Experience with reducing employee hours

Check with your state unemployment office.  In Washington State, smaller companies can place employees on reduced hours and the state pays partial unemployment benefits.  The employee's take home is just a little less but more than a layoff or a straight cutback.  The business costs are reduced and the state pays out less unemployment than if there was a layoff.

A few engineering firms are doing this.

RE: Experience with reducing employee hours

20% cut is a pretty sizable cut in salary.  We just had our salaries reinstated from a 5% cut that lasted nearly a year.  I must say that being on the receiving end that you eventually get into the mindset that it won't be reinstated.  Then if it does you feel like you got a raise :D   

RE: Experience with reducing employee hours

The engineering firm I work at has taken a similar approach.  32 hour weeks became the norm when things slowed down in 12/08.  The structural department started picking up in 12/09, but our electrical and mechanical groups did not pick up as fast.  

The difference was if you had billable work you could work 40 hour weeks so as not to impact schedules, etc.  As you can imagine, some people rarely worked 32's and some never worked 40's.  Even today you can see empty offices on Monday's or Friday's, or you see individuals playing games on their computers.

Morale has suffered as the "A-team" hoards jobs and others are left wondering if they will ever get back to fulltime.

I think management should have taken a more hands-on approach to seeing that work was dispensed more equitably.  I also doubt that the policy will ever change back.  When you accumulate some general time, you are reminded that we are still on reduced hours.

In fact, some new employees were brought on to replace retirees, and they were hired with the understanding that 32 hours was the norm.

We do know that we were lucky to weather the worst of it and keep our inurance, etc.  Personaly I've been on 40+ hours for 9 months now, but can't help but wonder if it will last.

gjc
 

RE: Experience with reducing employee hours

It makes no sense to me to hire on more employees when the ones you have are not working a full 40 hour week...

Dan - Owner
http://www.Hi-TecDesigns.com

RE: Experience with reducing employee hours

Agreed - but it was to fill a specific skill set in our electrical/instrumentation department where the new guy was the replacement for two long-term employees who chose to leave.

gjc
 

RE: Experience with reducing employee hours

I am in the moltenmetal camp, but I'd add that you should always, good times and bad, categorize your employees as an A, B or C, 123 whatever.    Each employee should know his rating and performance reviews should feature this discussion.  Bonus the A's more than the B's, who are your outstanding 10% or so.  C's job is to get to B or get fired.  

Back to the point of this discussion, when the bad times come, axe your C's.  As all the A's and B's know who they are, there is minimal morale impact.  

RE: Experience with reducing employee hours

Kiwi,

The problem with that sort of system is once the C's are fired, the B's become the bottom rung of the ladder.  Just as in society, there must always be a C to remind the B's to work hard.  So which B's become the new C's?  That ought to have an impact on morale...

Dan - Owner
http://www.Hi-TecDesigns.com

RE: Experience with reducing employee hours

We are talking about culling here.  There is never going to be a situation where you can address the extended payroll disparity without upsetting a few folks.  What we are trying to do is minimize the impact on those who remain, who just got their work doubled.  

The only situation that workforce reduction is less preferable to across the board pay cuts and furloughs, is where there are company pensions and large exit costs associated with downsizing.  

RE: Experience with reducing employee hours

How is their work doubled?  You culled because you had people who either didn't pull their weight or you had too little work for the number of people on the payroll.

Dan - Owner
http://www.Hi-TecDesigns.com

RE: Experience with reducing employee hours

Well, at least you are looking to cut time as well as pay.  That is much better than making people come in and get a 20% reduction, IMO.

As far as a reduced week, there is still a pitfall in that, from the salaried employees perspective:  You are essentially making them an hourly employee (in  actions only) for the downside of things.  When everything is moving right along, you want them to work 50 hours for nothing additional.  This becomes very apparent if you need to suspend the furloughs to meet a deadline.  The pay is reduced, but the overall time averages out.  That starts to look like just a pay cut then, with shifting of time.

As others have said, if you can cut someone, that may be better, but if you are small and cannot cut, then reduced hours may be the only way.  Some sort of incentive offered for when things improve may help to soften the blow.

RE: Experience with reducing employee hours

We had half-day Fridays (unless you had pressing, billable work) for the spring and summer. At one point, I had amassed about 40 hours by mid-day Friday from staying late working on a short-schedule project. I left mid-day Friday as I had gotten the time-critical items completed already.

Come to work on Monday and meet with payroll and my boss so they can inform me that I only get paid for 36 hours because I didn't work Friday afternoon.

I would say that has hurt my morale and I now have a pretty good eye on the clock...

-- MechEng2005  

RE: Experience with reducing employee hours

Well assuming some of the posters on here actually know anything about employment law it must be very different in the USA or where ever to it is in the UK.

You cannot simply get rid of the "deadwood" or the people you like least. Before enforcing redundancy on anyone you have to offer voluntary redundancy to all and it is usually the best people that you would least want to lose that would find it easier to find other work and take the offer. This is just one of the reasons it is very difficult to compete in a global market place from within the UK.

From a company perspective it is still probably best to shed staff and take them or others on later when you could offer reduced pay and benefits unless the market suddenly goes through the roof, personally I don't see that happening any time soon.

However if you have loyal, understanding and hardworking staff who you wish to keep and keep as happy as possible, reduced hours and pay is probably a better way to go.

The one thing you don't want to happen is to keep people on and effective subsidise them through hard times only for them to walk out the door when things improve because company B who laid off staff and kept overheads down can pay a few bucks more.

You are pretty much stuck between a rock and a hard place and whatever you do someone will not be happy about it.
 

RE: Experience with reducing employee hours

ajack,

It is indeed quite different between the US and UK.  In the US, many (most?) states are "at will", which means they do not have to provide any reason to remove you from employment, they just step you into an office and ask you to return anything that belongs to the company.  As I understand it, in the UK it's darn near impossible to get rid of dead weight.



Mech,

If you're in the States, they cannot legally bar you from pay if you worked the hours.  They can have a hefty fine levied against them if they're found out pulling that kind of stuff.  If you're in the UK, well, I won't guess what rights you might have, but considering the UK is very worker-friendly, I can't imagine it would fly there, either.

Dan - Owner
http://www.Hi-TecDesigns.com

RE: Experience with reducing employee hours

Ajack - as McGyver says, it's very different in the US.

Only in few union & govt jobs (& maybe a couple of states) does it take '3 acts of God' to get rid of someone.

I believe the OP is in the US, most likely in an at will state where employers have a lot of freedom legally.

Each round of lay-offs here had distinct 'flavors'.

The first 2 rounds were folk that had upset management at some point.

The next round was some more folks that weren't management fav's plus some general under achievers/less qualified staff etc.

I can't remember the next couple but the next one I remember they basically shut down one side of the business and only the real cream of the crop from that side were kept and got rolled into the other side.

The next couple of rounds seemed to target people who were over payed for their current roles, for example ex managers who'd returned to technical roles or managers who barely had any staff left.

In all of these there was a 'personality contest' element.  For instance, I don't think that anyone that regularly goes jogging with our VP got let go.

Posting guidelines FAQ731-376: Eng-Tips.com Forum Policies http://eng-tips.com/market.cfm? (probably not aimed specifically at you)
What is Engineering anyway: FAQ1088-1484: In layman terms, what is "engineering"?

RE: Experience with reducing employee hours

I'm no lawyer nor have I consulted one, but I've been laid off myself and have been involved in the termination of employees both with and without cause, and here's the way I understand it:  in Canada you can merely pull someone into an office, tell them there is insufficient work to keep them employed, and then pay them salary in lieu of notice and a severance once the layoff becomes permanent.  If the layoff is permanent and this is known from the outset, then notice or pay in lieu of notice, and a reasonable severance, are both required.

There is no requirement to offer voluntary redundancy to anyone, unless that is a condition of a collective agreement or something that walks and talks like one.  Most engineers here do not belong to labour unions but some do.

If they find another job such that they're not "ready to return to work" when you call them back from temporary layoff after some reasonable period (I seem to remember the magic number being somewhere in the neighborhood of three months or less), you owe them no severance payment as they are deemed to have voluntarily left your employ.  Seems unfair, but that's the way I understand the law to be here.

If you hire someone else for a similar position without calling those on temporary layoff back to active duty first, you owe the people on layoff a severance, and probably some punitive damages for behaving like a jackass as well- but only if they choose to take you to court.

The only time you need to prove cause for dismissing someone as "deadwood" is when you do not wish to pay the severance and other associated costs.  It is of course easier to negotiate a "reasonable" severance (i.e. lower than the industry norm) with someone you consider to be deadwood if you have noted any deficiencies in their performance, in writing, and afforded them opportunities to improve.

RE: Experience with reducing employee hours

As far as I'm aware, in the US there's not even a need to pay severance of any kind... most do, to varying degrees, but there's no requirement.

Dan - Owner
http://www.Hi-TecDesigns.com

RE: Experience with reducing employee hours

This is an interesting thread. I am also a partner in a small firm. We followed pretty much the standard advice here.

#1 Cut the B-team NOW. You will be immediately relieved by not having them around and so will your A-team. I held onto mine too long, thinking I could make the necessary sales and not realizing that it was a global issue and nothing I could control.

#2 Have a meeting with everyone and discuss the issues at hand. You should have already taken a pay cut if you are going to ask them to do the same. If you have not then you should or you should lay off one of them and take over their work (you need to show that your are doing more work for less pay).

When we did this, our people readily volunteered for the 4-day week. Once we got our financial situations figured out with the pay reduction, I think we all enjoyed the shorter weeks.

My company morale changed because one of my A-teamers turned out to have much less intestinal fortitude for hard times. He was a good technician, but expected to be fed like a baby bird and never have his life interrupted by work. He started to taint other a-teamers (through general b!tching) and I fired him with extreme prejudice one afternoon. Morale is great again, except for me because I am having to do all the work of the guy who I fired.

RE: Experience with reducing employee hours

Like others here our entire company (small 12 person consulting firm) took a pay-cut along with a reduced work week when our business slowed substantially.  This decision was made among the 'senior' staff (PEs and PMs).  We have now returned to a normal, plus some, work schedule and it was the best decision we made.  Being a small company it would have meant dropping some promising designers to keep the engineers.  By trimming the work week and pay we were able to keep those people around and continue to develop them.  Which has really paid dividends as work has come back because they are in better position to take on additional duties and responsibilities.  Double plus bonus because we are not scrambling to find adequate replacements now that work has picked back up.
Personally it was tough financially but I began to really enjoy the extra day off.  Now that we are back at full time & full pay I miss having   

RE: Experience with reducing employee hours

NCDesign:  same experience here.  We had a slow year and kept everybody- at full salary.  Yes, it cost a lot- but not only did it buy tremendous staff loyalty and respect, as a result we were in a position to seize a huge volume of work during the next business boom- work we would have either declined or accepted and then screwed up on if we'd cut our core staff.  Unfortunately, we also kept a few people that SHOULD have been let go...that would have been the perfect time to part company.  Then again, we all have low base salaries which are more than made up for in good times by a profit-sharing bonus.  The absence of that bonus for the slow year was enough of a stick without the need for pay cuts or work-share.  In good times it's a very nice carrot.

What it sounds like you're saying is that the employees at your place took a pay cut to provide a benefit to the business, but the only benefit they themselves got was the time off, and the chance to hang onto their jobs.  If that's the case, it's very normal but a little sad.  Employees need to be treated by the owners as partners in the business.  Wage reductions or lost time during slow times, or uncompensated overtime or superb performance during good times, need to be viewed as an investment of "sweat equity" in the business, every bit as valuable as if it were money used to purchase shares.  Otherwise, employees who are treated as if they were just employees cannot be faulted for behaving that way.

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