How Small Employers Are Preparing for a Recession

​Small organizations have overcome a range of HR challenges in recent years, from managing through a pandemic and converting employees to remote and hybrid work to talent shortages, widespread resignations, and inflation's impact on compensation and benefits. For those who work at small companies, these challenges can be even more difficult due to a lack of resources and training.

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Working Through
an Unstable Economy

A recession likely is looming, according to many economists who predict that rising inflation will slow business revenues through much of next year and prompt layoffs, some of which have already been announced at large companies such as Amazon, Meta and Disney.

While larger companies often are better suited to survive a downturn, small organizations can find it much more challenging, which is why many are taking steps now to prepare. The following are several ways in which small businesses can gear up for a possible recession while keeping employees' best interests in mind.

Cut Back on Spending

When a recession is on the horizon, smaller organizations should immediately review all spending and look for ways to reduce or eliminate unnecessary costs, said Linda Chavez, founder and CEO at Seniors Life Insurance Finder in New York City. Given uncertain economic indicators, Chavez said, she is keeping compensation flat for her 50 employees and is operating as lean as possible.

"We have been prudent in our spending in recent years and have built up a cash reserve that will help us weather any storm," she said. "I'm optimistic about the future because I believe that our company is well-positioned to weather a recession. We have a strong product and a loyal customer base."

Reduce Bonuses

To many small employers, retaining their workforce is of greatest importance. David Aylor, founder and CEO of David Aylor Law Offices in South Carolina, said his priority is to keep his 15 employees on payroll throughout the duration of the recession and not spend on bonuses to make up for lost revenue.

"We have no plans to lay any of our people off," he said. "Although we may have to cut down on our bonuses, we fully intend to continue to offer salary raises to keep our existing employees happy. This is because the cost of recruiting and training new employees is very high. So even in a recession, it will be cheaper to give existing employees raises than to lose them." 

Lease Out Employees 

Commercial and residential real estate has taken a major hit this year due to rising interest rates. At Borgia Consulting Corp., a service title insurance agency with 10 employees in Fort Myers, Fla., real estate closings have dropped 75 percent in recent months. Fearing the situation will get worse during a recession, owner Karina Lacroix is now leasing out her employees to other companies.

"We get to keep the employee on our payroll, but their income is being covered by the company leasing the employee," she explained. "If our business turns and we need the employee back, the new company is already aware and the employee would return to their daily activities with our company. That will keep us from having to find qualified candidates for those positions in the future and have to train again."

Employees are able to continue their relationship with Lacroix's company and keep receiving their pay, while other employers benefit from having skilled workers on their team, at least on a temporary basis.

"I'm really hopeful that all of my staff will be back together again soon," Lacroix said. "If I were not hopeful, I would not have leased them out and would have laid them off instead." 

Consider Raising Prices 

Rather than laying off any employees, some businesses are raising their prices to make up for lost revenue. Tom Monson, owner at Monson Lawn Care and Landscaping in the Minneapolis area, has taken this approach to protect his 12 employees.

"We've done our best to keep inflation at bay, but eventually we had to raise our prices to keep up with our spending," he said. "We've tried to cut our costs without laying off employees so that we'd have a little bit of wiggle room in our coffers to absorb some of a recession. And if it turns out this is all overblown, then we can use that money for more advertising or to upgrade some of our equipment."

Monson added that as a small business, "the only thing I really can do is to plan ahead, make sure our relationships with our customers are solid and not overexpand my business when it looks like things might be rough on the horizon."

Research Employee Needs

If you aren't sure how to proceed when attempting to prepare for a recession, consider advice offered by Julia Christenson, U.S. chair of employee experience at global public relations and communications services firm Edelman.

"Understanding your employees, their day-to-day life and what they are facing is crucial," she said. "Many companies, especially those with front-line workers, are removed from the daily challenges employees face and don't have a full understanding of how the recession will impact them. This is particularly true for companies with multi-generational workforces who face a range of social issues and different priorities."

According to the 2022 Edelman Trust Barometer, which measures employee trust in the workplace, 90 percent of people want organizations to protect the well-being and financial security of their employees and suppliers, even if it means suffering financial losses.

"In preparing for the recession, companies should carefully evaluate the commitments made to employees and the potential trade-offs in continuing to manage employee trust and engagement," Christenson said. "It's also critical that companies continue to foster real and true transparency around financial rigor, pay equity and financial decision-making."

Lacroix said she is committed to putting her employees' needs at the forefront while ensuring that her business is able to survive the downturn. 

"I believe that as business owners, we have the responsibility of protecting and keeping our employees happy," she said. "[I thought] of how we can protect our staff but also help our bottom line during the recession. It's up to us to come up with ideas that may be considered out-of-the-box to be able to bend with shifting markets and benefit our work family."

She continued, "I'm sure that if other business owners consider their staff as family, they also will come up with a variety of ways to help their staff and their company during those market changes."

Kylie Ora Lobell is a freelance writer based in Los Angeles.