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How HR Can Help Employers Prepare for an Economic Downturn, Part 2: The Human Element

CoAdvantage- In the first part of this series, we talked about how employers can start dealing with the economic downturn now facing the U.S., especially if it continues to get worse. We presented three key tips: re-skill the current workforce, base business decisions on good data, and focus on gaining efficiencies.

But there’s another dimension to dealing with a recession (or, worse, a depression) that bears discussion: the human element. “There’s the human side of this as well,” Bhushan Sethi, partner and joint leader of the Financial Services People and Organization practice at PwC, told HR Dive. “I can’t overemphasize that anticipating that there is fear and anxiety around these topics is important.”

1: Trust is more crucial than ever.
Distrust in leadership erodes employee engagement and loyalty more than anything else. During a recession, that means maintaining good communication with employees, so they don’t feel left in the dark and aren’t blindsided by company decisions.

2: HR is more critical than ever.
For example, during layouts and mass terminations, employers must take care not to inadvertently discriminate. Daniel Schwartz, partner at Shipman & Goodwin, told HR Dive that after the Great Recession, “We saw a number of age discrimination cases that were fought.” In other words, an economic downturn can create serious compliance risks, and organizations need to proceed carefully.

3: Treat employees – including departing workers – with respect.
As the Society for Human Resource Management writes, “One of the worst practices in handling layoffs may be to treat departing workers like criminals and walk them out the door with security—and then to discourage remaining workers from ever mentioning them.” One of the best ways to heal psychological wounds resulting from these kinds of events is not to cause them in the first place.

4: Avoid repeated layoffs.
If your company must reduce headcount, try to limit the number of layoff events. If employees feel the specter of layoffs constantly hanging over them, it will make workers constantly fearful, erode their psychological health, and reduce their motivation to be productive.

5: Consider the hidden costs of layoffs.
Layoffs can be a reflexive reaction to tightening budgets, but they can also inadvertently create a vicious cycle. “Yes, you’ve saved money from reduced headcount, but now you’ve got all your managers spending more time doing stuff that someone else had been doing,” says Brian Kropp, Gartner’s chief of HR research, told HR Executive. “The net cost of all that additional time is actually more expensive than the savings you got by reducing hard costs.”

6: Consider hiring or outsourcing.
“I think it’s important to consider that, during regular times, companies often don’t have the energy or willingness to reorganize, to evaluate what types of jobs could be outsourced or offshored, for example,” says Gad Levanon, chief economist and head of the Conference Board’s Labor Market Institute. “At the same time, a recession is—if you have the budget—a good opportunity to pick up some high-quality and cheap talent because many companies are going to cut back significantly on their hiring.”

7: Don’t panic.
This economic downturn is unprecedented, and it may not behave like any other recession or depression that has come before. In large part, it depends on what happens with the virus. If a vaccine is successfully developed this fall or early next year, the economy could see a rapid rebound. We just don’t know. And that means that while companies should prepare for the worst, they should take care not to make panicked and counter-productive decisions.

CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about CoAdvantage’s ability to create a strategic HR function in your business that drives business growth potential, contact us today.