10 Cost Containment Strategies During Uncertain Times

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Uncertain times such as the COVID-19 Pandemic have transformed the corporate world and have significantly impacted business operations worldwide. Companies are facing higher demands but are struggling to retain their employees. These industries include grocery store chains, health care providers, cleaning supply and human resources businesses, web conferencing providers, food and consumer proper distribution, test kit manufacturers, and more. Health care costs have doubled and businesses are forced to apply cost containment strategies to reduce unnecessary spending.

On the other hand, non-essential industries are struggling with a reduction in consumer demands. It means that they will soon have to face difficult decisions and apply effective healthcare costs containment strategies to prevent a complete shutdown.

But what are cost containment strategies, and how can it help the organization survive? This business practice balances and maintains the company’s expense levels at a minimum to prevent unnecessary spending. With such a strategy in place, employers are still able to support employees and maintain profitability without serious damage to the company. Here are some ideas that can be applied for significant cost-savings in the organization.

Layoffs

Temporary or permanently ceasing the employment of select employees should be threaded delicately. Consider what your organization can financially sustain before deciding on this matter. It can impact employees’ lives and company morale as well. If a layoff is imminent, you can guide affected employees on how to file unemployment claims. If possible, support them still by providing severance pay and outplacement services.

Reduction in Work Hours or Furlough

This strategy can help an organization effectively cut-costs during uncertain times. With a furlough, the company will temporarily implement a reduction in work hours or days. It can be made voluntarily or mandated by the company.

Some factors to consider in applying this move is the eligibility of some employees to claim unemployment for reduced hours or lost wages. The details of this can be seen with the Department of Workforce Development. More so, you can consult with your health insurance provider to know whether affected employees are still eligible for healthcare benefits despite the furlough. Some providers have temporarily waived the minimum hours worked or the FTE requirements.

Additionally, the organization should inform affected employees that regular work hours will be restored when customer demands are back to normal. More so, even with the reduced work hours, the company should still ensure that there are enough workers to cover essential business operations.

Base Pay Reduction

This strategy provides an effective reduction in operations costs. However, some risks come with it. When the company applies a base pay reduction, it can be done to all or selected employees. The reduction should be by a set percentage, and each employee should be paid according to wage and hour laws of the local, state, or federal government.

On the other hand, the organization may be impacted by disruption on internal equity and market competitiveness when this is applied.

Voluntary Unpaid Leaves

Uncertain times affect all employees and their families. It may also be an excellent time to encourage employees to take voluntary unpaid time-off and leaves so that they can spend more time with their family and loved ones. However, it would be best if you also considered how an employee’s unpaid status could impact their eligibility for health services benefits and deductions. Likewise, you can set a schedule for these time-offs to ensure that there are enough people to cover for essential business operations.

Freeze or Lower Incentive Compensation Plans

Incentive compensation plans are excellent ways to engage employees. However, during uncertain times, these offers can be stalled or reduced to help the organization contain expenses. Check whether these payments are guaranteed in the employees’ offer letter or agreements before taking steps to freeze or reduce it. Another factor to consider is the financial dependency of some employees on these incentives. Ideally, some incentive plans, such as sales incentives can be excluded from this adjustment.

Suspend Employer 401K Match Temporarily

A 401K contribution goes to the employees’ retirement benefits, and during tough times, an employer may temporarily suspend their match contribution on this for additional cost savings. However, you should first check whether the plan allows you to make such changes and the possible impact of this change to the employees’ health plans and benefits. More so, consider the effect of this suspension on HCE testing needs. The company should involve the trustee in making suitable amendments in this matter.

Temporary Suspension of Cafeteria Benefits Contribution

Organizations usually have a Cafeteria Contribution vehicle which can be easy to adjust if it is not reportable on form 1095c. But if it is reportable, the company needs to ensure that the reduction in the contributions will not lead to an adjustment of the employee’s premiums to exceed 9.78 percent of the household income. This is applicable for employers with 50 or more FTEs.

Voluntary Separation Programs

Uncertain times may not be the perfect time to leave an organization. But some employees are eager to take time off or leave the company for personal reasons, and this seemed like the ideal opportunity for them. As employers, you can offer employees who are willing to separate to take an employment separation package. Typically, severance pay is computed as one to two weeks of pay per year of service. Likewise, offer these employees outplacement services and other benefit support. It will be a highly appreciated offer from the employer to employees as they leave the company on good terms.

Limit Overtime Work

The business can start limiting overtime work by requiring employees to seek approval from a supervisor or executive before working beyond the standard work hours. During uncertain economic situations, it will help the business stay afloat and contain unnecessary expenses when work hours are closely monitored. Employers are required to pay incurred over time, thus, it should be limited when there is no pressing need for it.

Suspend Reimbursement for Cell Phone, Mileage, and Meal Expenses

During such times when work from home is encouraged, and movement is limited, the company may also temporarily suspend reimbursement of work-related mileage, cell phone use, and meal expenses. Individual states have laws on reimbursement of work-related costs; thus, check with your financial advisor first on how to implement this strategy.

Conclusion

Cost containment strategies are bound to help organizations minimize expenses during critical situations. The business operation can continue, but there are limitations set for employees. However, there may be associated with risks in the implementation of these strategies; thus, employers must also take steps to mitigate them. For instance, there should be no discrimination towards a group of employees; policies are developed in support of these changes, consultations are made with financial advisors and that the changes are communicated with the employees.

Each step that the organization takes to reduce expenses during uncertain times should be evaluated before they are implemented so that there will be no violation of local, state, or federal laws. More so, affected employees should also understand why these changes are being made, who is affected, and for how long these changes will ensue.

These strategies are not easy to plan out and administer. Hopefully, if your company elects any of these strategies, it is only a temporary period. Understandably, most businesses will implement cost containment strategies; however, everyone needs to be more supportive and emphatic of employees, especially those that are impacted by this turn of events.

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