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5 Reasons Why You Should Never Cut Back On Employee Benefits

Businesses go through an ebb and flow of good times and bad times. This is true for all companies in all industries. Eventually, your company will hit a rough patch financially. In those times, it is tempting to cut back on employee benefits to save money. You should never, ever do this unless this is the only way to keep the company going. It is much better to ride out the storm and live with a short-term loss for long term benefits. If you need more persuasion, here are five reasons you should never cut back on employee benefits: –

1. Decreased Morale

If employee benefits are reduced, morale will drop around the office. Employees will feel less satisfied and will be less fulfilled by their work. Watercooler talk will revolve around the loss of benefits and employee discontent will keep increasing. Morale will keep getting worse as employees continue to discuss the issue among themselves. Decreased morale hurts a company’s culture.

2. Decreased Productivity

Along with decreased morale, employees will be less productive. The loss of benefits will give them the impression that management does not care about them. This leads them to feel that their work is not appreciated or valued. This will reduce their drive to perform with the result that they produce less work. This loss of productivity will hurt the company financially.

3. Decreased Loyalty

If employee benefits are cut back, employees will see that they are not valued or respected, whether or not management says this. Benefits are part of the overall compensation and many employees depend on their benefits just as much as their salaries. If employees feel like the company does not have their backs, they will not feel the need to be loyal to the company. Unsatisfied employees are likely to look for other jobs and leave the company.

4. Increased Turnover

Employees leaving creates a need to hire and train their replacements. This turnover decreases morale and productivity even more as the new employees need to be accepted into the social fabric of the company as they get their feet under them in their new roles. They cannot produce at the same level as the former employees did because they are new. The worst part is that companies may lose their best people over the cutbacks, which will hurt the company’s leadership development in the long term.

5. Hurts Financially in the Long Run

Ironically, the short term solution of cutting back on employee benefits generally hurts the company financially in the long term. The loss of productivity hurts the bottom line, as does the employee turnover. Replacing employees’ costs time and money to hire and train them. Some estimates put the cost of employee turnover at 1.5x the salary of the departed employee. That is a massive expense and one that hurts more than paying employee benefits. Taking a short-term loss will be much better for the company in the long term than cutting back on employee benefits.

Focus on Non-Monetary Compensation (Recognition, days off, etc.)

When times are lean, employees know that things like bonuses will be reduced. And for the most part, employees understand this and are okay with it. Rather than cutting back on benefits, proactive companies may reduce bonuses and focus on non-monetary compensation to keep morale up. Companies can give recognition to employees, sometimes with an engraved glass award. Some companies will give additional vacation time or allow employees more flexibility with their work schedules. This makes employees feel valued and will keep their morale, productivity, and loyalty up.


It may seem like the best financial decision to cut back on employee benefits when times are tough, but this is exactly the opposite of what you should do. As we have seen, there are numerous negative consequences of cutting back on benefits that will have a profound impact on your company. Cutting back on employee benefits will negatively impact morale, productivity, and loyalty, which in turn will lead to an increase in turnover and costs. Make sure your employees know you value them and they will reward you with loyalty and productivity. One of the best ways to show value is a good benefits package that remains the same or gets better, even if the company is struggling financially.

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