6 Ways Small Businesses Can Execute Layoffs

We’ve had a strong economy for the past ten to twelve years so it’s difficult to absorb the tangible impact that businesses experience when the economy falls into a recession.  It’s even harder to accept that recessions are not always “man made.” Instead, they can be dictated by mother nature. One month ago, no one would have suspected that a global pandemic would have such a devastating impact on the global economy. Safety, security, employment, and life as we know it here in the United States and around the world have been heavily impacted. Small business layoffs are soon to be the norm.

Every company out there has ties to the physical, global world – whether they realize it or not.  Many businesses may not be able to sustain themselves at their current headcount. Many may need to restructure or lay off employees.  We’re giving companies 6 tips on how to approach small business layoffs in a time when fear, confusion, and remote employment has become the norm.

1. Start With Finances

One of the first steps that companies need to undertake is to determine what their short-term and long-term financial plans are.  One can take a strategic approach by trying to determine what worked (or didn’t) in the past. Look also at what is working (or not working) now, and what may or may not work in the future.  Understanding and planning around revenue, expenses, lines of business, profit and loss, and critical vs. non-critical overhead is of the utmost importance.  Create a new business model or a revised financial plan on paper is essential.  From that plan you should be able to figure out what your staffing needs look like.

2. Employment Alternatives

Extreme times can call for extreme measures. Or even creative measures.  Instead of layoffs, you may want to determine if you’re able to transition employees from W2 (employment) to 1099 (contract work). If so, there are best practices to follow when making these changes.  Next, are you able to reduce salaries, hourly rates, or work schedules? Could you move full-time employees to part-time roles? Can you create job sharing opportunities? Can you furlough employees or place them on temporary leave (thereby preserving benefits, job knowledge, and culture) for a short period of time? Before reducing staff, it might make sense to talk to essential employees. See if there may be new and creative ways that they can work for or remain connected to the company.

3. Determine Language

After you make decisions on how to move forward, you’ll need to be sensitive to how you conduct any downsizing efforts.  For example, are you referring to the change as a downsizing, restructuring, reorg, or RIF?  There are slight nuances to each of these terms, but using the right language could help you communicate your present and future intentions. You may want to determine if you intend to reemploy or rehire people in the future if market conditions improve.  Small business layoffs should not last forever.

Maintaining a high level of professionalism is critical when you are dealing with an issue that will have an enormous impact on peoples’ lives. Avoid using common business slang related to employee terminations (e.g. saying that people are getting “canned”, “axed”, or “sent to the firing squad”). Once you figure out how you’ll describe these changes, you’ll need to come up with a plan for how to communicate this – both internally and externally.

4. Selecting Employees

One of the most difficult elements of a layoff is determining which individuals form a part of it. Companies should focus on performance, compensation, and the goals/agenda for the organization. Seriously consider the team members that remain employed by the company after the layoff(s). Whenever terminating the employment of a group of employees, companies need to make sure that they are not adversely impacting a certain group of employees (or employees who may be part of a protected class).  Having a written plan and/or rationale for who you select for termination will go a long way. Thus you can be sure to protect yourself and your company from claims of discrimination or unlawful selection.

5. Figure Out Documentation

Determine what documentation to issue employees as the next step of the process.  Some locations require a formal termination letter (that contains specifically required information). Many other locations just require notification – verbal or otherwise. There are also some locations that require the company provide terminating employees with information related to the unemployment process and/or the date that their company-provided benefits are expected to end. These documents can usually be provided to employees in soft copy format (email or PDF) via email. Also make sure you are using the right location and address when terminating employees. For example, some employees may work remotely in a different state in which the company is headquartered.

6. Ending Employment with Dignity

Focus on providing departing employees with information on some things they need during small business layoffs. Final pay, PTO/vacation payouts, release from any post termination obligations (like non-competes or non-solicits), offering letters of reference, and providing additional insurance coverage or insurance information to departing employees are good options.  Some companies also provide terminated employees with outplacement support, crisis support, and/or future recruitment or resume support.  Having one on one conversations with employees via phone or Skype can help. Avoid as much as you can the group communications in these situations. It goes a long way to make an employee feel respected and that his or her contributions were appreciated.

* Miscellaneous

Companies should always make sure that they are following any laws that might apply to them.  The WARN Act is a federal law that dictates what steps employers with over 100 employees must do when laying off employees.  Some states have their own laws that are similar to the federal WARN Act, so it’s important to determine if any exist in the state in which you do business (or where you employee people).  You’ll also want to make sure you follow any final paycheck requirements.  Some states impose stiff penalties on employers who do not pay their employees’ final wages within a certain period of time.

If you have questions about headcount reduction, reach out to Suitless so that we can give you guidance and point you in the right direction.

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