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How to reduce labor costs without layoffs

In difficult times, employers always face the question of whether it is possible to reduce labor costs without dismissing anyone. Another question is also always raised: can salaries be reduced in a crisis on account of reduced activity and profit? 

There is a definite answer: if employees do not agree, employers cannot reduce employee salaries without changing the number of hours worked by employees. 

Besides dismissal, there are 2 other ways to reduce labor costs in period of low activity: 

  • Put employees on standby;
  • Switch employees to part-time.

Standby

What is standby

The Russian Labor Code defines standby as the temporary suspension of work for economic, technological, technical or organizational reasons and may affect: 

  • A single employee;
  • A group of employees;
  • All employees of a structural unit;
  • All employees of an organization.

Are salaries paid when on standby?

If standby is due to reasons beyond the control of employers and employees, employees are to receive at least 2/3 of their salary.

How to formalize standby?

Standby is set up by:

  1. Issuing a standby order specifying the reasons for and duration of standby;
  2. Notifying the state employment agency within 3 working days of the issuance of the standby order. This must be done if the entire organization stops working (Item 6 Rostrud Letter No. 395-6-1 dated March 19, 2012);
  3. Familiarize all employees put on standby with the standby order.

The law provides no notice period for standby, so it may be started the day following the issuance of the standby order provided all the employees have been familiarized with the order.

Switching employees to part-time work

Companies can reduce costs in difficult times without dismissing employees by switching employees to part-time work. This allows employers to retain employees who can return to full-time work in the future while employees keep their job and part of their wages during the crisis.

With the employees’ consent, employers may switch their employees to part-time work (for example, shorter working day or week). In this case, wages are paid in proportion to the hours worked. 

To switch employees to part time, it is necessary to sign an additional agreement to employment contracts.

Employers may reduce working hours unilaterally only in case of change in organizational or technological working conditions. But, in this case, employers must notify employees in writing at least 2 months prior to the reduction in working hours. 

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