Dear Dan: Our growing business added staff the past several years, but now we’re stretched. Still, I want to explore all cost-saving measures before resorting to layoffs. What are some options? - Layoff-Phobic

Dear Layoff-Phobic:  According to the National Federation of Independent Business (NFIB), the nation’s largest small business organization, layoffs by small businesses have hit record levels. “The small business economy is weak everywhere,” says William Dunkelberg, NFIB’s chief economist.

Todd Stottlemyer, President and CEO of the NFIB, adds this grim finding: One in every four small business owners now feels this recession threatens their very ability to survive.

Small business owners, however, are traditionally reluctant to make layoffs their first cost-cutting move. While big companies expand and contract their workforce with relative frequency, small companies tend to view their investment in people with greater reverence. Conditions will at some point turn around, and it becomes more difficult and expensive to bring good people back later.

Under current conditions, small firms are seeking ways to cut worker costs without cutting them loose altogether. Some non-layoff strategies include these:

1. Institute a four-day workweek (with shortened hours) for some employees.
2. Eliminate office space, phones and computers and allow certain employees to telecommute.
3. Freeze new hiring, eliminate current job openings and further reduce staff via attrition.
4. If some employees have less to do because business is down, redistribute responsibilities throughout the business and provide any training necessary.
5. Reduce or eliminate raises and bonuses; or apply an across-the-board pay cut.
6. Eliminate as much overtime as possible. Create a new overtime policy and restrict its use to select employees and circumstances.
7. Reduce company pension plan contributions and increase the employee portion of health insurance premiums.
8. Beware of substituting expensive temporary help for full-time employees. With less staff, using temps is tempting, but you’ll have to resist.

You could also consider voluntary exits, furloughs or temporary layoffs. With the right financial incentives, some employees may consider leaving voluntarily. Be sure to seek legal advice for this approach, however, to avoid discrimination lawsuits.  

Cutting pay and bonuses is also tricky and should be approach carefully. There’s a reason most big companies opt for layoffs rather than general pay cuts – they prefer to push the problem out the door rather than damage the morale of an entire workforce.

Small businesses have the same problem, so if you can’t show employees the money, consider amping up your efforts to boost morale through recognition, free meals and other low-cost devices.

Some businesses that never considered such measures before are trying out telecommuting and a four-day work week.  They save overhead costs while employees save on commuting costs.

But only certain jobs are a good fit for this strategy, notes Meredith Johnson, Chief People Officer at Gevity, a professional employer organization. “Jobs that are high on daily customer contact or require access to in-office reference materials won’t travel well,” she says. “But those that are heavy on computer work, require great concentration, and have clear objectives can be ideal.”

Before deciding, consider which of your employees would be a good fit. High performers with self-accountability will do best. Also consider the impact on yourself and others. Depending on your current style, you might now have to “manage by results” rather than the more traditional “manage by observation.”

Johnson suggests these guidelines for considering shortened workweeks and telecommuting:

• 1) Create a checklist of tasks suitable for telecommuting. Look at the type of work performed, the employees’ personalities and how your business measures performance to gauge success.
• 2) Think location. Who will be offsite and when; who will not; and how will your business function under the new arrangement.
• 3) Consider tech: There may be technology costs associated with telecommuting, including the software, web connections, security and tech support employees need to work from home.
• 4) Start small and spell it out. Try a test period before jumping in big and devise a telecommuting policy that spells out expectations, schedules and who’s responsible for equipment and software.

 Finally, don’t forget to ask your own people for their cost-cutting and efficiency-boosting suggestions. They are the ones who often see where waste and inefficiency occurs day-to-day in areas that you may not be aware of.