Six 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” but instead 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 and security, employment, and life as we know it here in the United States and around the world.

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 and may need to restructure or lay off employees.  We’re giving companies SIX tips on how to approach layoffs in 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 by determining 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, 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.  Creating a new business model or revised financial plan on paper is then 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 to 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 that you look to take.  For example, are you referring to the change as a downsizing, restructuring, reorg(anization), 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.   Maintaining a high level of professionalism is critical when you are dealing with an issue that will have an enormous impact on peoples’ lives.  Consider avoiding using common business slang related to employee terminations (e.g. avoid saying that people are getting “canned”, “axed”, or “sent to the firing squad”). Once you figure out how you’ll be describing 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 will be laid off.  Companies should focus on performance, compensation, and the goals/agenda for the organization and 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 for making sure you protect yourself and your company from claims of discrimination or unlawful selection.

5. Figure Out Documentation:

Determining what documentation to issue employees is the next step of the process.  Some locations require a formal termination letter (that contains specifically required information) while 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. Another thing to think about is making sure you are using the right location when terminating employees. For example, some employees may work remotely for the company from a different state in which the company is headquartered in.

6. Ending Employment with Dignity:

Focus on providing departing employees with information on things like 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 is always an option.  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 – as opposed to group communications – 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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