Dismissal – is it the only alternative to the redution of personnel costs?

Personnel layoffs, in both private and public system, are one of the most common topics in the mass-media our days.

Regarding this issue, for most of us 2009 meant fear. It seems that even the new state regulations have formed premises to personnel reduction.

But, we come to ask now if dismissal is really the only alternative to reducing the personnel cost?
The answer is far to be a simple yes or no. Many factors are involved in this decision such as:

• the business of the company;
• suppliers and customers;
• number of competitors in the market;
• substitution rate of products and services
• the future strategy of the company

Taking into account all these factors, when the management concludes that a company needs to reduce costs, a careful analyze regarding the following issues is request:

Personnel layoffs, in both private and public system, are one of the most common topics in the mass-media our days.

Regarding this issue, for most of us 2009 meant fear. It seems that even the new state regulations have formed premises to personnel reduction.

But, we come to ask now if dismissal is really the only alternative to reducing the personnel cost?
The answer is far to be a simple yes or no. Many factors are involved in this decision such as:

• the business of the company;
• suppliers and customers;
• number of competitors in the market;
• substitution rate of products and services
• the future strategy of the company

Taking into account all these factors, when the management concludes that a company needs to reduce costs, a careful analyze regarding the following issues is request:

• company’s organizational structure;
• budget of each department and profit sharing;
• organizational chart

The conclusion is now based on real fundamentals.

Giving this framework and depending on the business of the company, a series of measures to reduce personnel costs can be taken:

• în case of companies that have a collective labor agreement this can be renegotiate with the union. They might understand that keeping employees means to resign of some facilities other then the minimum ones provided by law;
• in sales, where the volume of cash varies, is possible to switch to a form of commission contract. Thinking ahead this is one way to increase efficiency but we must take into account the current requirements that employees must be covered.
• in IT a solution may be to ask the employees to work from home. This way, the expenses with the electricity, internet, water are considerably reduced;
• two more procedures may be offer: unpaid leave on a voluntary basis (this is based on volume of activity in a certain period of the month) but also the civil conventions
• on a simple search on recruitment websites in Romania you will be surprised to find a lot of part time job applications. The area where these companies operate is varied and in some cases is a way to reduce costs.
• Article 45 of the Labor Code defines the detachment as “act that is ordering the temporary change of job, from one to another employer, in the purpose of carrying on his job.” Detaching the personnel from one company to another is a very stylish way to reduce the personnel costs. There are some conditions in this case such as the period for which the detaching is made and the possibility of extension from 6 in 6 months with the agreement of the employee.
• The technical unemployment is another temporary measure for the personnel cost reduction, when the volume of activity of the company is decreasing, but still the employer doesn’t want to layoff people, hoping that in the future the situation will recover. For the employees, the advantage of this method is the maintaining of the employee and implicitly ensured status, but also the receiving of 75% of the net salary.
• Individual authorized person – PFA is increasingly chosen as being more advantageous to the categories of people who are specialized in certain areas and can operate independently. There are a number of conditions that must be met, steps to be done in order to obtain the authorization to operate. This is a measure to reduce the costs of a company only with the condition that the personnel can keep the quality of the employee inside of the company with a minimum wage and the difference is paid using the PFA.

All these measures have advantages and disadvantages in terms of both sides. In the same time, they can be considered solutions to decrease costs for short periods of time or can be rotated as appropriate.