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9 Ways SMEs Can Manage Staff Cost During the COVID-19 Downturn

The COVID-19 lockdown measures are hitting the economy hard, particularly SMEs and startups. Was your business prepared for a crisis? If not, you need to act fast and adapt to the new reality. We compiled 9 ways that SMEs and startups can manage their staff cost and ride through the downturn.

If your business has enough cash reserves, you may be able to keep all your staff fulltime. This article is for companies that cannot afford that option and need alternatives. According to a study by PWC, more than 40% of companies expect some form of staffing changes.

Here are 9 ways you can control your staffing cost during a downturn.

1. Freeze hires

During a period of great uncertainty, it is wise not to make new hires unless the life of your business depends on it. You don’t want to add more cost to your business. Pause any hiring plans until you have more clarity on where the economy is going.

2. Reduce salaries (with or without payback)

With your employees’ understanding and consent, you can amend your employment contract to reduce salaries. Make sure you communicate with them that this is only a temporary measure until business picks up again otherwise morale will take a big hit. If your business permits, you could also offer to pay the difference in salary reduction as a year-end bonus.

3. Restructure salaries with stock options

To make your employees feel more involved in the business, an alternative to the above point is to give them Company Stock Options to offset the reduced salary. As an example: restructuring salaries for the next 4 months to 60% cash / 40% stock options, with a stock vested period at the end of the year. The lower the cash, the more stock you could give, for example 40% cash / 80% stock options.

4. Reduce working hours

Since your business is likely to have a reduced level of activity, you could reduce working hours of your staff during this period. For example going from 40 hours full-time to 20 hours part-time.

5. Leave of absence

If your business is coming to a halt and you need to go on hibernation mode, then keeping part-time or full-time staff may not even be an option for you.  In that case you could ask them to go on a voluntary leave of absence, or unpaid leave.

6. Delay pay increases and bonuses

Did you commit to pay increases, bonuses or commissions? The reality is you might not be in a position to do so anymore. If that’s the case, communicate with your staff. Let them know that you are still committed to your engagement but the payout will be delayed due to the situation.

7. Lend your resources to other business

Your industry of activity may have gone down, but others may have gone up. Think about contracting your staff to another company for a temporary project. If you run a restaurant, could you lend your waiters to food delivery platforms? If you currently have an IT team of developers, could you outsource them to other projects?

8. Making tough layoff decisions fast

If you are facing cashflow issues, you most likely will need to retrench staff. For the benefit of everyone, you should make this difficult decision fast and early rather than drag it. In times of crisis, you need a team with strong work ethics, that performs 110%. If you are to pick your ‘stay team’, select those you know are 110% committed. As Pete Flint from NFX points out: “after the layoff, be sure to tell the remaining employees how painful it is to lay people off, and that you believe this will be the only round of cuts”.   This will give your remaining team peace of mind.

9. Automate tasks

Now is the time to reflect on your business and figure out which tasks you can digitize and automate. Automation is an excellent way to save cost by replacing repetitive and time-consuming manual tasks that take up a lot of your resources. Replace people-driven processes with technology wherever possible and shift your staff resources to more productive tasks.

How long will the crisis last? Nobody knows for sure, there are too many unpredictable variables. The best you can do for your business is to focus on the variables you can control, such as cost. Plan for a worst case scenario where you achieve only 20% of your target revenue over the next 6 to 9 months. You need to keep your operations as lean as possible.

Once the economy picks up you’ll most certainly need to hire again to grow your business. To prepare for that, ensure you have cost-efficient hiring solutions in place.

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