Given the current pandemic scenario, the ensuing slow down and future uncertainty, most companies are evaluating their costs with a focus on their variable expenses.
Although many companies are considering ways to reduce employee costs through layoffs, furloughs or salary reductions, there are also other considerations that should be kept in mind, especially for global businesses.
Below are some key points to consider.
The slowdown has been devastating for some businesses. However, there are also organizations who will prosper as a result of the pandemic. These include companies engaged in e-commerce, pharma/biotech, virtual provisioned services, companies in their support industry sectors as well as manufacturers of basic services and supplies. That said, while the prospect of salary or job cuts is undesirable, it may unfortunately be required for many businesses.
Talent Is Valuable
The pre-COVID world was facing a talent shortage of skilled workers in countries with low unemployment levels such as the US. As a result, companies may be wise to avoid a knee jerk reaction to terminate these coveted employees as the shortage of top talent may return in a few months.
One way of retaining core skillsets while reducing costs is to carry out HR competency assessments and implement layoffs in a layered manner starting with those employees having the lowest ranking. Indeed, this process is mandatory in many European countries, even in those where the social charter does not apply but it is also good HR practice.
Use Stimulus Reliefs to Cut Costs Where Possible.
Many countries have announced COVID-19 related stimulus packages which can also be availed of to offset costs by replacing layoffs with furloughs. For example, in Singapore between 25 and 75% of the employee compensation for 9 months is available (for up to first SGD 4,600 of the salary per month). Another example is Canada, which is offering a 10% subsidy on employee remuneration for three months subject to certain limits. Netherlands is offering a NOW scheme for granting compensation towards wages of furloughed employees (up to 90% of total wages) for a period of three months based on the revenue loss suffered. The UK’s COVID-19 related job retention scheme will cover up to 80% of an employee’s salary up to a maximum of GBP 2,500 per employee per calendar month.
Many other countries including Brazil, China, India (for certain employees), and Spain have also offered reductions or waivers of social security for a few months. This can provide companies with significant benefits at a time of reduced cashflow.
Watch Out for Labor Laws
Labor laws abroad have not changed as a result of the COVID-19 crisis and employee terminations can still be difficult, costly and time consuming to implement in many countries, especially in the EU. Add to this the fact that governments across the world are acting to do their best to discourage job cuts.
For example, India, where ordinarily employment laws for white collar workers is about as close to the US “employment at will” as can be achieved anywhere outside US, the government has issued orders preventing salary cuts during the lock down period to apply to most private businesses. In Spain, employers may implement the suspension of employment contracts and reduction in working hours only due to force majeure (COVID-19 related) causes in which case the organization must apply to the competent Labor Authority with an explanatory report.
In many countries employee consent and/or works council approvals may be required before headcount can be reduced (although obtaining such consents may not be very difficult in the current circumstances). If, as an alternative, a salary reduction program is implemented, this may require a proportionate reduction in hours worked. Salaries could also be reduced by adjusting the remuneration split between variable and fixed pay components making total remuneration more dependent on business performance.
As in most cases, it is critical for businesses to obtain top quality employment law advice before acting.
Last but not the least, your business may be one of the fortunate ones that is winning out in the present scenario! If so, this is a great time to hire as you will have maximum leverage.
Other non-employment related cost savings may also be achievable in areas such as office rents and third-party vendor costs. Furthermore, since many employees are now working from home, it may be possible to permanently shift some staff to work remotely, thereby reducing office space requirements.
As headcounts reduce internationally, costs can also be saved by outsourcing formerly internal “cost overhead” functions such as HR, internal finance and legal to trusted third party providers.
To summarize, global operations and international trade will continue to be important to U.S. companies even as this recession unfolds, but organizations will need to be smarter about managing their international footprints and overhead costs. It is not a time to go it alone, but to work with an experienced partner who can help achieve these objectives.
Shan Nair is the president of Nucleus, a one-stop global expansion solution for businesses and a consultant on international expansion.
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