May 27, 2020

What COVID-19 may mean for your headcount

As Australians face one of the deepest recessions of the past century, businesses will need to make tough decisions around their human resources. But how will this play out in the long term? And what trends will we see emerge in the new reality that is post-COVID-19?

In many cases business will have to cut jobs in the current environment and many have done so already – despite the Federal Government’s JobKeeper measures.

But staff reductions aren’t the only approach being taken and, if history is anything to go by, it’s not even the best approach to take longer term.

In fact, as businesses begin to emerge on the other side of COVID-19, they’ll need to be as resilient as possible, with a robust set of human resources approaches to support their strategic vision. That calls for thinking outside the box.

How businesses are responding now

Business confidence slumped from +4 in February to -66 in March, according to NAB’s Monthly Business Survey, representing the weakest reading in the history of its Business Index. This was underscored by the fact that 35 per cent of SMEs reduced their headcount, with one in five (21 per cent) cutting staff numbers by more than 50 per cent.

While business sentiment has crept back up (to -46 in April) as the COVID-19 situation improves and the government loosens restrictions, it will likely be many months before life returns to a new norm. In the meantime, businesses will need to navigate a highly challenging environment, potentially resulting in further job cuts along the way.

Staff reductions aren’t the only cost-saving measures to hand, however, as businesses have already shown. Some have chosen to reduce work hours while others have opted for salary reductions – either for partners, senior staff or the company as a whole. Then there are those who have put staff onto unpaid leave, with or without the support of the government’s JobKeeper allowance.

Does it matter? Absolutely. While immediate cash flow concerns can determine whether a business will survive or not, how they’re positioned further down the track will determine whether they will thrive in the long term.

Where to from here?

History supports this view. According to a 2010 US study, companies that emerged from the global financial crisis (GFC) in the best shape focused more on operational improvements and less on layoffs.

US conglomerate Honeywell is a good example. During the 2000 stock market crash, it cut nearly 20 per cent of its employees, then struggled to recover through the subsequent downturn.

Come 2008, when the GFC recession hit, the company instead stood down employees for one to five weeks on unpaid or partially compensated leave. Despite the severity of that particular recession, Honeywell came out the other end in relatively good shape, in terms of net income sales and cash flow.

Reimagining the new norm

Of course, these are all temporary measures and that’s the beauty of them. It means that businesses can retain their valued staff and thus regain momentum more quickly post-COVID-19.

But what about when the dust settles and things return to ‘normal’? Just now it’s hard to imagine, but it’s in a business’s best interests to do so. That way they’ll be in the best position to embrace any opportunities that come their way.

When it comes to employees, that means deciding when will be the best time to bring more staff onboard and in what capacity. In fact, many businesses may be tempted to hire temporary staff going forward – a hallmark of earlier recessions and a rising trend pre COVID-19 as employers and workers embraced the gig economy.

At the same time, this has to be approached thoughtfully – and with a mind to the prevailing legislation. Before the current crisis, some businesses were caught treating workers as temps when the law decided they were, in fact, permanent employees.

Meanwhile, in May 2020 the Federal Court found that casual workers who worked regular and predictable shifts rostered in advance were not in fact casuals at all and were entitled to paid annual, sick and carer’s leave. While the government is considering reforming the legislation to override this decision, for now it’s the law and could result in a substantial amount of backpay.

Protecting your staff

Another trend to emerge during other recessions was a reduction in work hours. While economics is usually the driver, the circumstances of the current recession could lead to a substantial decrease in certain workers’ hours as well as an increase in working from home – a consequence of long-term social distancing and more liberal notions of work flexibility.

It comes at a cost, however. Underemployment is a huge issue in Australia and sees many women in particular under the poverty line. On the other hand, a drop for permanent workers from a five to a four-day week might be welcomed in some circles, if it was teamed with work certainty or other benefits. Employers, for example, could offer benefits ranging from greater flexibility in daily working hours to additional annual leave to help parents with school holidays.

Avoid being too defensive

While it’s too early to know with certainty what long-term employment trends COVID-19 will usher in, businesses can already take steps to ensure they’re well placed to remain competitive and better withstand future market disruptions.

No matter the shape of the new business environment, employee costs will continue to weigh heavily on cash flow. While reducing headcount may be one option, it’s not necessarily the smartest. By thinking strategically, not simply defensively, you have a better chance of surviving – even thriving – post-COVID-19.

Your survival snapshot

  • Job cuts may be necessary – but there are other options that might put you in a better position
  • Hiring temporary workers may give you the flexibility you need further down the track
  • Reducing employees’ hours may be a long-term fix.