15 Drastic Cost Containment Policies for Employers in a Fiscal Emergency

Recent weeks have been fiscally challenging for many American employers. For those who have been hit with draconian cuts to their operating budgets, some combination of the following cost containment measures may be necessary to get through this period of crisis.

It is no secret that the new administration in Washington has gone to great lengths to downsize or eliminate government funding grants for a vast array of organizations. Many nonprofit and academic institutions which relied upon these grants to finance their operations are now left reeling amidst an unexpected shortage of capital. Under circumstances such as these, it may be advisable for affected organizations to consider more drastic measures than those recommended in our standard Cost Containment Playbook.

While these "nuclear options" are not advisable under normal circumstances due to their extremely negative effects on morale, retention, competitiveness, and reputation, they may be necessary for employers who are fighting for fiscal survival. Below, see our list of policy options for those who find themselves in this type of emergency situation:

Employee Benefit Cost-Sharing

1. Introduce tiered plan contributions based on salary or job title

To lessen the financial burden on lower-paid employees and the organization, employers can implement a sliding contribution scale where higher-earning employees contribute a proportionally greater amount towards benefit plan premiums.

2. Reduce or eliminate employer contributions toward dependent health coverage

Employers can contain their health insurance plan costs by only subsidizing coverage for employees and eliminating subsidies for dependents. This can generate significant savings while still maintaining core benefits for workers.

3. Make voluntary benefits fully employee-funded

Shift non-essential benefits like dental, vision, and short-term disability, to a voluntary model, where participating employees cover the full cost instead of the employer subsidizing the premium.

4. Raise deductibles and out-of-pocket maximums

Raising deductibles and out-of-pocket limits will drive down premiums, shifting more of the cost to plan participants, particularly those who are higher utilizers of the plan.

5. Offer high-deductible health plans (HDHPs) with no employer HSA contribution

Employers who currently offer an HDHP and contribute to employees’ health savings accounts (HSAs) could consider removing any employer contribution to the HSA. This eliminates cost to the employer while allowing employees to continue to save pre-tax dollars to help pay for out-of-pocket healthcare expenses.

Plan Design & Provider Optimization

6. Utilize tailored provider networks

Employers can take an active role in steering plan members toward specific provider networks that offer deeper discounts, reducing overall plan spend.

7. If your headcount shrinks, consider switching from self-funded to fully insured

For most employers, self-funded plans are more effective at containing costs than fully insured plans. However, it is possible that downsizing organizations whose headcount falls below a certain threshold may be better served by a fully insured plan instead. Employers who take this step should secure terminal liability options (TLO) in advance to cover “run-out” claims associated with their self-funded plan.

8. Explore carve-outs for expensive health plan components

For organizations with self-funded plans, “un-bundling” components of the plan and “carving out” elements such as the pharmacy, stop loss, and coverage of high-cost treatments like dialysis and organ transplants is an excellent way to potentially secure immediate savings while also protecting the company from catastrophic claims.

Paid Leave and Compensation Adjustments

9. Reduce or eliminate paid leave payouts for accrued vacation/sick time before layoffs

If layoffs are anticipated, employers should review their leave policies and state and local laws that govern the payout of accrued but unused vacation or sick time benefits. Some states treat these benefits as wages which may need to be paid out upon separation from employment. However, if there is no such requirement in your jurisdiction, payout upon separation will be governed by company policy. In either case, employers should consult with legal counsel to determine their obligations to separated employees.

10. Switch from accrued PTO to an unlimited PTO model

Transitioning to an unlimited PTO policy removes the employer’s liability for accrued leave payouts upon separation, reducing financial obligations. In some states, converting from a vacation or sick leave policy with an accrual or frontloaded bank of hours to an unlimited PTO policy may trigger the same payout requirements as separation. It should also be noted that some states have very strict requirements on what constitutes an enforceable unlimited PTO policy. Employers should consult with legal counsel to determine their obligations to employees under the current leave policy before making any changes.

11. Mandate a temporary across-the-board pay cut

Instead of layoffs, a 5-10% salary reduction across the organization can provide immediate savings while preserving jobs and core operations. Employers are advised to review each salary reduction to determine whether the reduction lowers overtime exempt employees below the required salary threshold to be eligible for the exemption.

12. Implement a four-day workweek with adjusted salaries

Reducing workdays while proportionally lowering salaries can help retain staff while cutting labor costs. Though reducing compensation is obviously unpopular, affected employees may also appreciate additional free time associated with a reduced workweek. Employers are advised to review the overtime requirements in the jurisdictions of business operations, as some states calculate overtime daily rather than weekly.

Workforce Restructuring & Alternative Cost-Saving Measures

13. Reduce workforce hours instead of layoffs

Rather than conducting mass layoffs, reducing employee hours can maintain the employment status of workers while reducing payroll and shifting the financial responsibility for health insurance to COBRA, which employees must pay for themselves. Employers should be aware that a reduction in hours may affect the overtime exempt status of employees. Employers should review potential wage and hour consequences with legal counsel since the penalties for violations accrue daily under state law. Some states also provide Workshare Programs where employees can supplement their lost wages with unemployment compensation. Employers should review the options in the jurisdictions of their business operations.

14. Temporarily suspend employer contributions to retirement plans

Employers can halt matching 401(k) or other retirement contributions to cut costs while keeping the core plan intact for employees who wish to continue contributing.

15. Offer unpaid sabbaticals

Employers can offer extended unpaid leave options as a cost-saving measure while keeping employees on the books for potential future reinstatement. It should be noted that, in some instances, employees who do not participate in paid work for long durations of time can lose eligibility for certain benefits.

You can track key actions and regulatory changes from the new administration that could impact your organization by visiting the OneDigital's resource page for real-time updates: Federal Policy Updates for Employers: What to Watch in 2025.