How to Cut Costs and to Keep the Team Together

During the crisis, companies are trying to cut costs, including labor expenses. Such a policy may be feasible in those fields where personnel are not the main source for profit creation -- for instance, in production and extraction. But what should be done when personnel are the most valuable element of the business? How one can cut costs and keep the team together?

Analyzing the norms of the current labor legislation, one can conclude that there are only a few ways to solve these complicated problems within the legal arena. This is not surprising, as employees are the weaker party in an economic sense in domestic labor legislation. At the same time, there are certain provisions allowing the employer to reach the desired result while observing labor legislation requirements.

Obviously, few employees will voluntary agree to sign an addendum to a labor contract, which would lower his salary, so this variant isn't very realistic, even if it is legally permissible.

Experience shows that in order to cut labor costs, a number of companies introduce part-time working regime or a shortened working week for employees. This method allows companies to legally lower wages cut costs. It should be noted that the introduction of a part-time working regime is generally permitted if it is agreed on by both sides (article 93 of the Russian Labor Code). The employer can introduce a part-time working regime for a six-month term at the maximum and only to prevent mass layoffs that would be caused by a change in organizational or technological labor conditions. Even then, this right carries the stipulation that the employer consult the elected leadership of the primary union (article 74 of the Russian Labor Code). While this method is legal, it is not the most flexible. As employees begin to work four days a week instead of five, the already decreased profitability of the business falls even lower.

One of the most vivid examples is the consulting industry. Consulting firms sell their employees' time to clients -- therefore company profitability decreases as the amount of billable time spent by employees falls.

The aforementioned article 74 of the Russian Labor Code is the more flexible option in this instance. Under this provision, if the terms of a labor contract cannot be maintained because of reasons related to changes in organizational or technological labor conditions (or changes in the technique and technology of production, or structural reorganization of production, or other reasons), they can be changed by the employer, except for changes in the employee's labor function. This provision allows the employer to offer new labor conditions to employees, and the employees are free to accept them.

The installation of new equipment, for example, which leads to a new shift schedule may be considered a technological change. An organizational changes could be a shakeup in the firm's internal structure (if it provides for change of labor conditions) or a change in timesheet procedure due to the cancellation of regular office visits. The latter is quite topical, as freelance work has becomes popular.

The employer is obliged to notify the employees of changes in labor conditions in writing and such notification must be made in advance -- at least two months in advance. If the employee is not willing to continue to work under the new terms, he has a right to leave and receive a compensation equal to two week's average wage. This option gives the employee an opportunity to make a choice and allows him to begin new job search.

Mechanisms like these allow each of the parties in the work relationship to react appropriately to crisis events. On one hand, it allows the employer to solve the cost saving problem in a more flexible way, on the other hand, it allows the employer to save the most valuable thing he has – his team. The employee is free to select whether to stay in the company or to search for a new employer.