Staff at the five-star North Bridge hotel have been warned that management are currently determining those eligible for voluntary redundancy.
But general manager Helen Gallagher said that while cuts need to be made, the “restructuring” was designed to make the hotel “more efficient” and allow for the creation of a minimum of ten new rooms.
Architects are currently drawing up plans, but in order for the extension to go ahead some facilities, such as the gym or spa, may need to be axed.
Two meetings were held last month at which staff were informed of looming redundancies and the Evening News revealed how workers received a letter to state their wages may not be paid on time because of a “challenging trading period”.
It is understood cashflow problems should be resolved by the end of this month.
The hotel, which has a workforce of about 160, is part of the JJW Hotels and Resorts group, which is in turn part of MBI International, headed by Saudi billionaire Sheikh Mohamed Bin Issa Al Jaber.
A spokeswoman said: “The redundancies are designed to make the Scotsman more efficient to deal with the new challenges, including the changes in the Edinburgh hotel scene as international tourists now form the highest segment of the market.
“There will be a reduction in the workforce that will reach most departments but in due course, and as we strive to update and expand through the proposed introduction of more accommodation space and more facilities, there may be an opportunity for new jobs in the future.
“We are passionate and determined to make the Scotsman a more exclusive destination living up to the expectation of what guests expect from a five-star boutique hotel as unique as the Scotsman.” She added: “We would like to assure current and future guests that the service and facilities will remain and continue to be of professional high standards.
“The ongoing changes are part of restructuring the hotel and are intended to update and improve our historic venture.”
Last month, the Evening News revealed that kitchen staff had staged a stoppage because their wages had not been paid and fears have been raised about the hotel’s ability to honour future bookings, such as weddings and conferences.
A staff member, who asked not to be named, said: “The hotel is facing serious cash problems so it’s obvious they need more rooms and less staff.
“Morale is at rock bottom at the minute.”
The hotel – which has 56 rooms and 12 suites – was opened in 2001 by the newly formed Scotsman Hotel Group in the building which used to house the Evening News.