How to Downsize Strategically and with Compassion: 5 Tips

September 2025 saw a dismal jobs report after months of similarly disappointing numbers. In fact, February 2025 saw the highest number of layoffs in the US since 2009, with over 220,000 jobs cut in the first months of the year. Government, technology, accounting, retail, manufacturing and logistics sectors are being hit the hardest. And with growing economic uncertainty, US stock market volatility, and some companies claiming to replace employees with AI agents, organizations and employees alike have reason to be wary.

You may no longer be in the market to hire—how do you know when to cut back, and how to go about it the right way? Downsizing your staff is a significant challenge, and as you guide your company through downsizing, executives and employees will look to HR for support. While it may be an appropriate choice under difficult circumstances, it’s an emotionally difficult experience for all involved.

Challenges to corporate downsizing include navigating internal communications, managing morale, public relations, and more. HR professionals play a critical role in ensuring downsizing is legally compliant and as compassionate as possible.

To help make a tough task a little easier, we’ve gathered our five best tips for managing downsizing, offboarding employees, and protecting your business’s long term health.

What does downsizing mean?

The business definition of downsizing is the permanent reduction of a company’s workforce. Sometimes, corporate downsizing is deemed necessary to reduce staff costs, often as a result of relocation or a portion of the company’s operations becoming automated.

It’s usually a decision made in the company’s best interest, not due to the fault or misconduct of the employees.

Five ways to downsize your business

Your next—and most difficult—task is to figure out which employees to lay off.

There are third-party auditing and consulting firms that will do this for you. However, these can be expensive and may fail to recognize some of the value that individual employees bring to the table. We’ve gathered the top five practices key to a successful downsizing effort.

1. Keep compliance in mind

It may be obvious, but one of the most important considerations in any company downsizing process is your legal position. Depending on where you’re based, you may be subject to a range of legal requirements before you can downsize your business. These may include:

• Standardized selection criteria
• Minimum requirements for severance packages
• Proof that lay-offs are unavoidable
• Appeals procedures
• Procedural requirements.

If you don’t meet these properly, you may find yourself facing a lawsuit or suffering reputational damage. It’s a good idea to seek out expert legal help when you’re dealing with furloughs or layoffs.

2. Consider asking for volunteers

You could also consider offering early retirement plans. Employees who have been with your business for longer generally have higher salaries. More senior employees may also already be part of a more generous pension or retirement plan than their junior colleagues.

This often reduces the additional costs of early retirement schemes compared to voluntary redundancy. You may find that employees will volunteer themselves if it means receiving an early retirement package. There may be others in your organization who would like to change careers, start their own businesses, or go back to school, even if they’re not ready to retire; consider offering severance if you can.

3. Focus on departments

Another effective approach for strategic corporate downsizing is to focus on specific departments while ringfencing others.

One way to do this is by using a little bit of common sense. For example, a sales team of 100 people may be able to operate effectively after a 30% job cut, but an accounting department of three people probably wouldn’t.

Similarly, you may wish to classify certain departments or job functions that are “mission-critical”. A hospital is a good analogy for this. Here, the organization wouldn’t be able to achieve its bottom line if it reduced medical staff like doctors and nurses, so these would be “mission-critical” employees. Job losses would then be limited to non-mission-critical staff who work in administrative or business services departments, for example.

4. Create a dynamic selection criteria

A more in-depth strategy for selecting employees is to create a list of different criteria and score each staff member based on these. You might even weigh each based on their relative importance to the business.

These criteria might include:

• Seniority
• Experience
• Unique skills & knowledge
• Management skills
• Recent performance.

The benefit of using employee evaluation as a downsizing strategy is that your remaining employees will be the best suited to your business. You should communicate these criteria ahead of time to ensure transparency and trust throughout the process.

5. Have a post-downsizing plan

Finally, have a plan for what will happen after you’ve finished downsizing employees. It’s essential to know how your business will weather this storm, even after employees have been laid off.

You may have had to combine roles or change existing job titles. If this is the case, ensure that the remaining staff have been cross-trained accordingly so that all tasks are completed to the same—if not better—standard than before.

This will help ensure that the remaining employees do not feel overworked and help to maintain morale. You may also decide to give back and make small sacrifices to help your remaining staff regain a positive working environment. This could include introducing flexible working hours, organizing a surprise team away day, or even offering bonuses.

What’s the key to a successful downsizing effort?

There isn’t one way to approach corporate downsizing. Every company decision is unique, and a wide variety of factors can influence the process. Business downsizing, of course, has a significant impact on livelihoods, so it’s essential to handle the matter with sensitivity.

If you approach the process badly, you’re likely to hurt employee morale. In turn, this will lead to a decline in productivity and employee retention might suffer in the long run.

According to Forbes, here’s what you should prioritize for compassionate corporate downsizing:

• Ensure you stay transparent. Embrace empathy. Consider how this news will affect employees, their families, your customers and external stakeholders.
• Communicate clearly and appropriately. Consider the timeline and make a plan to communicate the process in a way that ensures human contact and communication. This applies regardless of whether the employee is working remotely. Communicating via email can be seen as insensitive.
• Timely decisions. Announcing such important news at inappropriate times can cause confusion. Consider your timeline and ensure it’s communicated internally as a priority.
• Manage morale. If you fail to address your remaining team’s job security concerns it can lead to distrust and decrease productivity and engagement.
• Provide support for all. Your retained team will watch how you handle the layoffs. Communicate the support you’re providing and remember to uphold your company values.

When should you downsize?

It’s hard to know the right time to make such a large business decision. Most high-profile corporate downsizing happens in periods of uncertainty, for example, if your industry is declining, or your country is facing an economic recession.

During economic downturns, the public has less money to spend. Consequently, businesses have less demand for their goods and services. So, to stay afloat during these times, companies sometimes need to cut costs.

One of the most straightforward ways to do this is by reducing the number of employees a business has. The benefit of cutting costs in this way is that a business can remain operational—albeit on a reduced scale—while it weathers the economic storm.

Next steps: Carefully follow these tips for strategic downsizing

Downsizing in business is never an easy decision. It must be carefully considered, and all parties must be respected. Make sure that you stay transparent and empathetic throughout the entire process. Ask your staff how they feel. Listen to their concerns and see if you can ease their worries in any way.

Now that you understand the meaning of company downsizing, you can start putting steps into place to strategically downsize your business by employee offboarding.