5 Tips for Downsizing Your Company with Minimal Risk

5 Essential Tips for Downsizing Your Company

5 Essential Tips for Downsizing Your Company

December 22, 2022


Picture of INS Global



Picture of INS Global



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Key Takeaways

  1. Downsizing a company typically involves laying off multiple staff at once.
  2. Having to reevaluate your company’s short and long terms again doesn’t mean failure.
  3. Be sure to have legal advisors who can go over every detail of relevant labor and employment laws so that you don’t make any costly mistakes during downsizing.


Deciding to downsize your workforce is never easy. Still, it may be necessary for the survival of your company or to meet necessary business objectives. When preparing for the downsizing process, it’s essential to consider how it will affect your staff in the short and long term. This article will give you five tips for downsizing effectively to make the process easier for you and your employees.

The damage to stability from downsizing can negatively impact employee morale for years to come. You want to be proactive and take steps to prevent your remaining employees from feeling worried or dissatisfied with their role in the company.


What are the Challenges of Downsizing?


Downsizing a company typically involves laying off multiple staff at once. Once the process has begun it’s very hard to stop or slow down. In addition, many companies find that they struggle to make up for the reduction in employee productivity that comes with the negative impact on morale. When calculating employee turnover rates, downsizing regularly falls among the factors that most negatively impact retention.

While downsizing may appear to be a way to quickly achieve both short term goals and long term goals, it’s not always the safest bet. There are many challenges to overcome when choosing employees to leave an organization, including:


The Loss of Valuable Talent


When you reduce your workforce, you will inevitably have to let go of some skilled and competent trained workers. Even when dividing the number of employees you need to downsize among different departments in an attempt to restructure, the average number of employees you are left with will represent a loss of experience and potential.


Complex Termination Processes


Every country has different guidelines around employee termination. If you have overseas branches, downsizing will become even more complex as you must adhere to the legal regulations of each individual system to end contracts properly.


Lower Employee Engagement Leading to Higher Employee Turnover


Watching other employees lose their positions in the company fosters fear among the remaining employees.

It can make workers question their place in the company and increase the annual turnover rate.


Less Available Staff for Customer Service


Your clients’ needs are likely to be your number one priority, but a smaller workforce can result in less effective customer service. This, in turn, can risk your relationship with both new and established clients in terms of market share and availability.

Fortunately, these issues are not impossible to overcome. With foresight, careful planning, and good communication, you can move through these challenges and strengthen the workforce of your downsized company. Below are five tips to help you maintain company productivity and employee motivation during the downsizing process.


Five Tips for Downsizing


Be Transparent with Your Employees


It’s best not to try to hide the company’s situation when there are problems. Being open and honest with your staff about the circumstances that have led to downsizing and what the downsizing process will entail fosters trust and communication with your team.

By sharing the details and allowing your employees to be aware of every step, you also garner their support and understanding, which in turn will improve employee retention and engagement during this transitional time.


Communicate Quickly About Any Change in Workload


Fewer employees will mean more intense work goals for the remaining staff team. Assigning additional responsibilities to your employees can cause stress and discontent and slow down production. Instead, hold meetings with your employees and discuss how to distribute the work in a manageable way.

Be open to hearing your employees’ opinions and ideas. This will not only improve the productivity of the workers but will also make them feel valued and show that their contributions are essential to the company.


Process Terminations With Care


When downsizing a company, the last thing you want is to spend more on paying fees and fines for compliance errors. Ensuring that employee terminations are filed correctly and in full accordance with local employment laws is essential. This can involve taking care to manage things like employee health insurance transfers as they leave the company.

Many countries have different regulations for mass layoffs, so depending on the number of employee terminations you may need to handle the process differently or consult with local labor unions. Be sure to have legal advisors who can go over every detail of relevant labor and employment laws so that you don’t make any costly mistakes.


Be Flexible with Company Objectives


With a smaller team, your company goals may change or shift. If you no longer have the means to reach previous company objectives, you need to be willing to change trajectories.

As downsizing represents a natural part in the development of many companies, ensure that you stay true to your company vision throughout this time even as you adapt your strategy. Produce clear mission statements that match your activities, find other ways to improve employee experience such as boosting options for work life balance, and be ready to negotiate new terms of employment for your remaining staff.

Having to evaluate your company’s short and long terms again doesn’t mean failure. These changes are simply a part of the process. You should also communicate these changes with your employees and receive their input and engagement.


Transfer Your Employees to an Employer of Record


Having to deal with all the many details of the downsizing process can be overwhelming. Transferring your company administration to an employer of record (EOR) or PEO means you don’t have to handle everything by yourself. An EOR will oversee all aspects of payroll, HR services, employee contracts, and termination.

We can help you manage staff from signing employment agreements to protecting you from employees who who left during downsizing. With professionals taking care of every administrative aspect, you’re free to focus on other essential elements of the company.


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