5 Common Workforce Reduction and Management Strategies

Let’s face it: It’s impossible to turn workforce reduction into a pleasant experience for a company and its employees.

But even if you can’t change the circumstances that force cost-saving measures, you can still choose smart workforce reduction strategies to sustain your employer brand and cause minimal employee stress.

Here's a quick guide to five common employee reduction and management strategies, plus other tips for lowering workforce costs.

5 Common Workforce Reduction Methods

1. Rightsizing

The concept of rightsizing is straightforward. It's an approach that helps you get a bird's-eye view of an organization and assess its current state to determine necessary and strategic workforce changes (including in-house staff, contractors, freelancers, non-essential workers, etc.). Moreover, rightsizing implies accumulating the proper headcount and skill set to cover the organization’s business needs.

But rightsizing isn't a quick fix for workforce reduction. It’s a gradual process that involves strategic workforce planning (SWP), upskilling and reskilling, natural attrition, and removing underperformers.

Using data analysis and SWP solutions, HR managers can simulate workforce scenarios, mitigate risks, forecast accurate headcount, optimize workforce structure, and more.

2. Hiring freeze

During uncertain times, hiring new talent is a luxury. That’s why a hiring freeze — sometimes known as a temporary hiring suspension — could be a lifesaver.

Hiring freezes were a common workforce reduction tactic during the global COVID-19 outbreak. In March 2020, job openings in the U.S. fell by more than 17% from the previous year, dropping from 7.5 million in 2019 to 6.2 million in 2020. Companies froze hiring non-essential workers and non-priority positions to survive economic and global uncertainties.

Unlike layoffs and furloughs, hiring freezes don't draw as much attention and tend to be less harmful to employer brands. They can also be a catalyst for reevaluating workforce strategies and becoming more resilient through rightsizing, upskilling, and employee career development.

3. Reskilling and upskilling

In 2024, Business Insider spoke with industry leaders from prominent organizations who highlighted the growing importance of reskilling and upskilling employees to adapt to the integration of AI technologies in the workplace. While AI will handle certain automated tasks, it also creates opportunities for employees to elevate their roles by mastering the ability to collaborate effectively with these technologies. Companies must prioritize ongoing learning initiatives, ensuring their workforces remain flexible and capable of leveraging AI tools to their full potential.

Reskilling and upskilling are healthy alternatives to layoffs as you can keep your employees, retain them with learning and development initiatives, and still fulfill your business goals. Just like with rightsizing, upskilling, and reskilling require a long-term commitment. You don’t get quick results off-hand. But when an unexpected crisis hits, you can keep your business afloat and retain the key talents by introducing them to new roles and responsibilities.

4. Furlough

If layoffs seem inevitable, consider making them temporary. Furloughs — a leave of absence — help companies reduce costs while still retaining their critical talent. Organizations can offer a variety of terms on pay and duration, and employee benefits and bonuses are typically suspended during a temporary layoff.

However, consistent and clear communication is key for effective furloughs. A timely notice, for example, with employee guidelines and an exact return date will significantly reduce uncertainty and speculation. It's also important to outline possible risks as a result of furloughs, including an eventual layoff (if applicable), contract termination, redundancy, etc.

5. Reduction of non-essential staff

Nothing beats a fun company event at the local ballpark or office get-together with pizza, table games, and laughter. But in times of uncertainty, those activities can suddenly become a luxury — and so are the event coordinators and office managers who plan and organize every step.

When workforce reductions are needed, cutting back on non-essential staff and activities is usually the first consideration. But this might not necessarily mean layoffs — transferring non-essential staffers to a new role, rotating them among departments and branches, or combining roles or responsibilities can be strategic options for retaining employees while reallocating resources.

Other Ways to Reduce Workforce Costs

If layoffs and other common workforce management strategies aren't suitable for your organization's strategy, try these methods for reducing workforce costs:

• Outsource some functions: "Borrowing" talent might be the best, most cost-effective option in certain cases. Instead of keeping a full-time office manager, for example, you could outsource the service and keep your administrative tasks in order. But remember: Outsourcing companies must keep their margins high, so consider the value of services for the price before making the switch.
• Improve productivity: With time tracking and productivity software, you can track your employees’ productivity to find bottlenecks and room for improvement. If you find out some tasks can be done faster, you may consider workforce redundancy and distributing tasks among the team members. Or you could automate routine, manual tasks to free up employees' time and reduce human error.
• Combine responsibilities: Some responsibilities don’t require a dedicated job role. A company's UI/UX designers, for example, could have the skills or adjacent skills necessary to create simple illustrations for other departments without the need to hire an extra specialist.‍
• Lower your job requirements: The savvier professionals you require in your job postings, the higher their salary and benefits expectations. Some companies take advantage of this approach, hiring junior or middle-level specialists and providing them with guidelines and quality benchmarks. As a result, businesses kill two birds with one stone: Save money on a salary fund and get a quality outcome.

Choosing the Right Workforce Reduction Strategy for Your Organization

How organizations manage their workforces during times of crisis or uncertainty greatly impacts their agility and trajectory.

Layoffs, for example, might provide a short-term advantage in critical circumstances, but they also significantly deteriorate employee engagement and the company’s profits. Smarter workforce reduction methods — such as furloughs, hiring freezes, or reducing non-essential staff — can provide cost-effective relief quickly without sacrificing critical talent. Meanwhile, long-term workforce transformation strategies — including rightsizing, reskilling, and upskilling — can help sustain and grow businesses.

So how can organizations make the best workforce decisions for their needs? It starts with thorough data analysis, scenario modeling, and strategic alignment with the business.

• Data and insights: To make informed decisions, organizations must gather, analyze, and interpret data about their current and future workforce needs. This includes assessing skills, competencies, and performance metrics, as well as considering external factors like industry trends and market demands.
• Scenario modeling: Organizations should always consider various “what if” scenarios — such as rapid growth, economic downturns, or technological disruptions and develop strategies for each. This flexibility ensures workforces can adapt and thrive in any situation, offering resilience and competitive advantage.
• Supporting future goals: By aligning workforce planning with the strategic vision, businesses can ensure they have the right people with the right skills in place to achieve their long-term goals.