The agency's board directors called a meeting last week to inform employees that a six-week period of consultation had been entered.
Kindred MD Nick Mustoe revealed to PRWeek that a 'worst case scenario' would be that one-third of the agency's 80-plus staff would be out, including two board directors.
The agency is also considering closing its Leeds office, after making a small number of redundancies there last year.
Mustoe explained the move: 'Everything is on hold with the Government, we don't know where we stand. We can't employ 80 people if we haven't got anything for them to do. So we've taken the decision to go into a period of consultation. Clients cannot even tell us whether we can spend any money any more.'
He said he did not expect Government business to return until next year.
The news follows last month's revelation that Mustoe is considering a management buy-out of Kindred, as parent company Tribal seeks a buyer.
While the Government - Kindred's main customer - slashes public sector budgets, Tribal has judged Kindred as 'non-core' business and is seeking to divest the agency.
Mustoe said the current state of government PR was 'rapidly changing'.
He added: 'Clients told us their account wouldn't be affected. Then we were told an account was on hold. Then they've told us it's cancelled and now they're going to look for an exemption.'
The agency has already started taking steps to diversify its offering by taking on private sector clients, member organisations and private sector bodies.