Health Benefit Costs—Fly in the Ointment of Flexible Alternatives to Layoffs

Since February, 2008 when I first encouraged companies to consider using flexibility—reduced schedules, furloughs, sabbaticals, additional unpaid vacation days, job sharing and contract-based work—as an alternative to layoffs, I’ve gotten the same response from managers, “That’s great, but what about the health benefits I still pay for if I use flexibility?”  It’s the fly in the ointment of an otherwise straightforward business case in favor of using flexible alternatives to reduce labor costs while minimizing job cuts.  So what’s the answer?

In previous posts (here and here), I’ve pointed out that if you look only at the direct costs saved such as salary and benefits, then, yes, layoffs look like the better option (see table below).  This is why a manager thinks that if he or she lets go of someone making $50,000 (salary and benefits), they save $50,000

However, as I outlined last week, the cost/benefit argument shifts dramatically in favor of flexible alternatives when you pull back the lens and add in all of the direct and indirect costs incurred from layoffs (see table below), which can range from 150% to 250% of an employee’s compensation.   In other words, laying someone off who makes $50,000, actually costs $75,000 to $125,000, especially since the research shows that many organizations continue to hire or rehire during and after job cuts. 

Bottom line: By using flexible alternatives to reduce labor costs, you still have the expense of health benefits, but you avoid incurring the costs related to job cuts that a far greater.  For inspiration about how flexibility can minimize layoffs, check out the updated Downsizing Flexibility Champions list, and for "how to" steps to get started go to