What Layoffs Mean for Small Employers

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"Big companies tend to lay off people sooner and more of them than small businesses, which tend to carry people longer."

Keeping Workforces Intact

One approach that small businesses are using to deal with the downturn is to rely more heavily on independent contractors as a way to keep or increase staff numbers while saving on payroll taxes and benefits. SurePayroll's survey noted a spike in the number of independent contractors and freelancers used by small businesses over the past 10 months. At the same time, small companies are hiring people on a contingency basis or have come up with flexible sabbaticals for employees. Others are instituting job-sharing programs, across-the-board pay cuts, reduced hours, and unpaid vacations in an effort to keep their workforces intact.

Perhaps most important, small companies that find themselves laying off employees are coming up with incentives to keep those people working on an independent basis and allow them to come back into the fold when the economy picks up. "The big companies are reluctant to do that," says Cappelli. "The decisions are driven by top executives who have a quirky view of the world. They think everyone is an independent cowboy and will say, 'Pay me or I will quit, the hell with it, someone else will hire me.'"

"One of the things that big companies are doing that doesn't make a lot of sense is letting people go without any kind of arrangement that makes it possible to grab them back," says Cappelli. "[In] the last couple of downturns we have seen jobless recoveries. The big companies wait a long time before they hire back workers. Small companies can seize on that opportunity. It hooks people in now and lets them hire them full-time later."

Determining ways to keep a workforce in place often has the added bonus of rallying employees around a larger cause, building loyalty within the company. Says Cappelli: "That is not the case when you lose your best workers."

More elements of this special report are available in the related items box on the upper right side of this page.

Perman is a staff writer for BusinessWeek in New York.