If you absolutely have to, here’s what to do.
Your business has been growing and expanding, with plenty of new hires over the years. But now, for whatever reason, things are trending in the other direction. Your revenue stream is shrinking, and you have to take action to save the business.
What do you do?
Layoffs are one survival tactic, but that's a bumpy road, so you'd better prepare.
The basics
- Sometimes layoffs are necessary to keep a company afloat
- It’s a risky move with a lot of potential for backlash from both remaining employees and the public
- There are laws to comply with, make sure you do so
- Have a plan
- Do it with humanity and avoid going viral
Do I need to conduct layoffs?
Sometimes economic conditions are no longer capable of sustaining your operation as it currently exists, and something has to change if you want your business to survive. Layoffs are one such option.
Layoffs – in which employees are terminated for economic reasons rather than poor performance, often en masse – are a big deal, with far-reaching impact on both the affected employees and the future of your business.
Potential cost-cutting alternatives
Layoffs are nearly always an attempt to cut costs, but with such a risky move, it’s worth considering less aggressive cost-cutting measures first.
Rather than terminating employees outright, you could try reducing the hours available to each employee, postponing raises or bonuses, or even reducing wages. While these all impact the employees, they’re less severe than layoffs, and many people in the workforce would accept such measures rather than risk losing their job entirely.
You should also try opening the floor to cost-saving measures from your team, who are often more directly involved in operations than the management and can offer insights into process improvement that you might not discover otherwise.
| 📑 Note: Furlough refers to when a company facing exceptionally challenging circumstances, whether individually or as part of a society-wide economic downturn, temporarily puts employees on leave rather than terminating their employment outright. This option can affect unemployment options for affected workers, so check out the rules in your state. |
How to conduct layoffs
Once you’ve determined that layoffs must proceed, it’s important to make sure you’re going about it carefully. There are laws to comply with, and many other pitfalls that can affect the future of your business if you’re not smart about this.
The steps
First things first: check out any relevant laws that might dictate how you are to proceed with layoffs. The Worker Adjustment and Retraining Act, or WARN Act, for instance, is a labor protection law that requires any business with 100 or more workers to provide 60-day notice of any potential mass layoffs.
You also need to avoid any discriminatory patterns, intentional or otherwise, in which employees are selected by layoffs. For example, you don’t want to fire all the disabled people in your workforce or you’ll be found in violation of the Americans with Disabilities Act (ADA).
With all applicable laws in mind, it’s time to come up with a detailed plan involving who is getting laid off, who is notifying laid off workers, how job duties will be assigned to the remaining workers, etc. You want this to go smoothly. Get your CPA and attorney involved in the planning, too.
In fact, it's always good to have an idea of who your next three fires (and hires!) might be, maybe more or less depending on the size of the business. It can be an emotional decision, so making it as far in advance as possible will help you stay level in the moment.
A timetable, both of any necessary advance notifications and the layoffs themselves, should be utilized. Avoid multiple rounds of layoffs, which tend to have a negative effect on productivity and morale. It’s better to get this done all at once, so plan in advance to make sure that happens.
Any necessary paperwork, such as final paychecks, information about any benefits like health coverage that might extend after termination, and whatever else is required in your state (remember to check!) should be prepared in advance as well. One important detail: a personal, professional termination letter.
Finally, give all affected employees detailed exit instructions to minimize confusion. Nobody should be confused about what to do with their building keycards.
What to do for affected employees
Since the employees you’re laying off are being terminated for economic rather than performance reasons, it’s both good form and good strategy to offer a few basic considerations here. Public image and workforce morale are two big risk areas during layoffs, and parting amicably with any affected employees can go a long way towards minimizing these risks.
- Give them advance notice (in writing) so they can plan to land on their feet.
- Write a recommendation letter so they can find other employment as smoothly as possible.
- Make sure they’re paid until the layoff date (legally you have to anyway). This includes any remaining PTO they might have accumulated.
- Discuss resources that they might take advantage of like unemployment benefits, COBRA coverage (which could allow laid off employees to retain health coverage), etc.
- Avoid confrontations, embarrassing laid off employees in front of their colleagues, or otherwise burning bridges.
| ⚠️ Note: You might recall several instances of CEOs going viral for conducting mass layoffs over video, teary eyed about how they feel bad. For obvious reasons, you should not do this. Avoiding going viral should be a goal you keep in mind throughout the layoffs process. |
Risks of a layoff
Nobody, on either side, enjoys layoffs. At the end of the day, they’re always a sign that something has gone wrong, whether in the business, the industry, or the economy as a whole. There are a few particular risks you should consider in advance. Ask yourself:
- How will layoffs affect remaining staff? How much will morale suffer? What expertise might be lost? How will productivity be affected?
- How will the community react, particularly your customers or clients? Are you losing loyalty or facing public backlash as a result?
- Are you complying with all regulations during the process? Are you leaving yourself open to any legal dangers?
| ⚠️ Note: One often-overlooked risk of layoffs is an increase in costs of unemployment insurance, which is tied to how many unemployment claims a particular business is associated with. Mass layoffs can come with a price tag. |
There’s no way to completely avoid risk while conducting layoffs, but keeping these things in mind can help soften the landing for everyone involved.
Bottom line
Look, layoffs suck. There’s no way around it. But sometimes it’s either that or go out of business.
If you’re facing that unpleasant option, prepare in advance. Have a plan. Make sure you’re complying with all regulations, warning employees well in advance, and otherwise doing everything you can to avoid confusion and help your former employees leave with dignity. It’s not going to be fun, but you want to do this right and avoid ending up in the news.
