We find that firms whose staffing buffer exposes them to more risk pull back on adjustable financial risks. This buffer—expected excess labor capacity (precautionary labor)—lets firms meet uncertain demand, but its committed wage bill raises financial-distress risk. We measure precautionary labor from German short-time-work records during eased-access episodes, when otherwise-hidden idle labor becomes observable. Among export-oriented SMEs, which have major currency exposure, firms with more precautionary labor leave less foreign-exchange risk unhedged. This holds when instrumenting precautionary labor with occupation-based training and hiring frictions tied to firm-specific human capital. A newsvendor model with financial distress formalizes the mechanism.