As multiple pressures such as tariffs and digital spending drive up corporate operating costs, chief financial officers (CFOs) increasingly need to weigh the pros and cons of layoffs when making difficult cost-cutting decisions.

According to Newsweek, citing data from Challenger, Gray & Christmas, U.S. layoffs rose to 806,383 from January to July 2025, a 75% year-over-year increase and the highest level for that period since 2020. During the pandemic in 2020, layoffs exceeded 1.8 million. The report also noted that government downsizing, corporate restructuring, and the expanding impact of artificial intelligence have jointly fueled the wave of layoffs.

Consulting firm Gartner said in a recent report: "Facing downward revisions to economic growth expectations, higher capital costs, and policy uncertainty, CFOs are turning to cost optimization initiatives to defend profit margins." The report added: "However, CFOs face difficult trade-offs. They must ensure that cost optimization initiatives aimed at preserving margins do not inadvertently over-trim the human capital and capabilities needed to support the next wave of growth."

The report was authored by Vaughan Archer, Senior Director and Analyst in Gartner's Finance practice. It noted that despite rising layoff numbers, layoffs are not always effective. Common mistakes include: spreading cost-saving targets evenly across functions to avoid conflict; determining layoff lists based on rigid rules such as "first in, first out"; or failing to anticipate follow-up costs of layoffs, such as hiring contractors or paying overtime to complete necessary work due to understaffing. Such unforeseen issues can lead to an "unsustainable cost rebound."

Vaughan's report provides CFOs with practical steps to help companies make smarter choices in addressing workforce cost challenges and even layoff decisions:

  1. Help companies exhaust non-headcount cost reduction options.The report shows that salaries typically account for a significant portion of functional and operational expenses—for example, averaging 74.6% of finance function budgets. However, Gartner advises that before considering layoffs, CFOs should offer companies a range of other cost-saving measures that do not affect headcount or require restructuring costs.
  2. Abandon across-the-board workforce reductions.When reducing staff, CFOs must consider the importance of each function or team to the overall corporate strategy. "Not all people costs are equally important, and treating them as such may cause CFOs to penalize more efficient parts of the organization and erode important sources of value," Gartner said.
  3. Provide budget owners with decision-making tools and data.Some managers use backward-looking metrics when developing potential layoff lists. Instead, employees should be tiered based on "their alignment with future business strategy and their direct contribution to revenue or performance." Gartner also noted that CFOs need to provide management with information that enables them to quantify both the salary and non-salary cost reductions from layoffs, as well as upfront costs including severance, prorated bonuses, and other related expenses.
  4. Stick to cost reductions and establish tracking systems to ensure implementation.CFOs must prevent cost-cutting gains from being eroded by new expenses such as overtime pay and aggressive rehiring. Gartner advises: "For example, finance planning and analysis (FP&A) could be tasked with maintaining a rolling list of departments and positions where cuts have been implemented over the past two years, to monitor the reappearance of costs."
  5. Retain key talent through communication.CFOs should work with senior HR leaders to clearly communicate the financial rationale behind layoffs and cost cuts. "Communication must cover two critical phases: preparing management for workforce reductions, and ensuring that remaining employees—especially top performers—remain engaged, focused, and motivated after the layoffs," Gartner said.