To Lay Off or Not to Lay Off - What’s An Employer to Do?

Think twice before reducing your workforce to manage what may be short-term business fluctuations.

You've lost accounts. Cash is tight. You are a small to medium-sized business. You're concerned with having to lay people off. You don't want to eliminate competent and committed employees—they’re tough to find and harder to hold. A few need to leave, but you haven't had the time or nerve to do anything about it. On top of that, you fear that if you make a mistake and lay off the wrong person, you'll find you've violated some law or regulation while increasing the fear level of employees who remain.

Welcome to the club. Its enough to keep you awake at night (and probably does). Before making workforce decisions based on possible short-term business fluctuations, however, consider the following:

Audit for excess costs. Eliminate those expenses if possible.

Ask employees to come up with ways to save money and jobs. Offer them 10 percent or more of the actual cost savings, payable at a later date.

If someone terminates, consider leaving the position vacant, hire part-time or make hiring the exception rather than the rule.

Talk with current staff. If salaried, ask them to work longer hours. If hourly, ask for more overtime and increased productivity. Be honest about the company's position.

Cut nonproductive overtime pay and eliminate taking paid time off (vacation/personal time) until the crisis passes. Ask for volunteers first.

Go to a four-day work week. Ask staff to use banked paid time off.

Reduce or eliminate perks, from the top to the bottom.

Reduce or eliminate non-core benefits (other than medical, dental).

Eliminate or defer bonuses.

Offer “survival” bonuses to avoid lay offs. This can be cash, stock, vacations or other perks if productivity increases and break-even—after cost cutting—is achieved.

Ask for voluntary unpaid leaves.

Defer raises. Speak with each employee, if possible, and ask for increased performance. Thank them in advance too.

Defer or reduce salaries for highly compensated employees. Let associates know this was done. At one firm, when employees learned what the founder was making to avoid workforce reductions, they were less resistant in considering their own wage reductions to save jobs.

Consider offering a portion of the business with a buyback option in exchange for wage concessions.

Consider expenses that will be incurred directly and indirectly by the layoff, such as the cost of severance packages and professional or legal fees for preparation of severance agreements. Factor these costs into your break-even analysis.

Consider the effect a reduced workforce would have on your benefit plans. That is, those to be let go will schedule physicals, dental work and operations before they lose coverage, potentially increasing plan expenses.

Determine whether you are prepared for unfounded EEOC charges, OSHA inspections, wage and hour audits and software license audits.

OK, it didn't work. You've got to reduce the force. What do you do before, during and after a layoff? Some (but not all) areas to consider follow:

Make sure you've taken every possible step to cut expenses.

Make sure you're not damaging your own production by cutting employment costs.

Incidences of stress-related illness and accidents, both among employees targeted for layoff and those remaining afterward, are not rare, particularly if prior notice of the layoff is given. Be prepared to manage each case.

Be prepared to constructively address reduced productivity from surviving employees.

Make certain you are not discriminating against minority groups, women, employees over 40 or other protected groups under state or local laws. If you're a federal contractor, examine how the layoff affects any affirmative action programs. If you have 100 or more full-time employees, ensure you are not violating the Workers Adjustment and Retraining Notification (WARN) Act.

Document each reason for selecting an individual for layoff. Select those to be laid off by using equal performance standards applied fairly to all individuals in the job(s) to be reduced. Ask yourself, “If I had to justify my decision to an average person on the street, would he agree with it, using only the written documentation on hand?” If no, reexamine your justification and document accordingly.

Consider each individual to be laid off as just that, an individual.

Consider severance packages of some kind. Large firms provide, per year of service, an average of one to four weeks’ pay to executives, one to two weeks to middle managers and one week to administrative, clerical and hourly employees. (Make sure you seek professional advice regarding written severance agreements and their contents, particularly if you are asking for a release in exchange for severance.)

Deliver the announcement to each individual privately, on Friday, at the end of the day. A well-handled and compassionate layoff can dissuade ex-employees from causing you and the company grief.

Have all paperwork and final pay ready at the time of announcement. If you have a professional HR department, have the employees immediate manager deliver the news with your HR staff ready to take over, or assign another management professional if you don't have HR. Make sure employees are fully informed about options for health coverage and retirement packages. Offer outplacement supportive possible.

Last, remember the “There But For The Grace Of God Go I” syndrome that's in the mind of every employee left after a reduction in force. Realize that your work to minimize the “fear quotient” and to prevent a dispirited workforce and a drop in customer service, quality or productivity has just begun.

Always consider obtaining management and legal assistance when contemplating a workforce reduction. It can go a long way in making this unpleasant event manageable.

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