Employee compensation and benefits typically represent half of an organization’s total operating expenses, and making job cuts is a painful but inevitable reality that most employers will face during times of economic crisis.
While layoffs should always be a last-resort effort, reducing staff can be a necessary means to an end to save your organization from financial devastation.
Still, employers considering cutting staff must consider a range of legal, logistical, and personal factors when letting employees go. Here’s what you should consider before reducing your organization’s staff.
While permanently cutting jobs might be the quickest way to save cash, there are other less permanent options to consider before pursuing layoffs.
A furlough is considered to be an alternative to a layoff. Furloughed employees are required to work fewer hours per week or take a certain amount of unpaid time off. Employers must continue to pay salaried employees on a salary basis so that they do not jeopardize their exempt status.
“Not only does this reduce chances that you will have to pay out unemployment benefits, it means that when the budget situation does improve, you can increase the hours of the existing employees instead of taking the time and expense to find and training a new employee,” says Doug Adams, Director of UI Solutions at 501(c) Services.
Anticipate questions and concerns
HR managers must be prepared to address a variety of questions and concerns from laid-off employees as well as anxious coworkers. When preparing to cut employees, be sure to carefully consider the details of their termination to prepare the employee with as much information as possible, mitigate the potential for legal challenges, and make their transitions as smooth as possible.
Here are some steps to work through before following through with layoffs:
- Work with legal department to determine whether the employee will be given a severance package, which benefits will be kept, and for how long
- Cut a final paycheck to include unused vacation time and reimburse for any outstanding expenses
- Be prepared to discuss healthcare continuation
- Determine timing for exit-interviews
- Determine what to tell coworkers and remaining employees about layoffs
- Collect all organization property and remove employee’s information from organization lists
Considerations for reimbursing employers
Federal law allows certain employers (specifically public entities, government agencies, educational institutions, and nonprofits) to opt-out of paying state unemployment insurance (SUI) taxes and instead reimburse the state for benefits paid out to separated employees. These employers will often work with trusts like 501(c) Agencies Trust to set money aside in anticipation of inevitable layoffs.
Because these employers are responsible for paying the cost of separated employee’s SUI benefits, they’ll see immediate financial costs upon laying-off employees.
For example: If you end up laying off someone who earns $35,000 in salary, your organization may end up paying $12,000 to $15,000 in unemployment benefits, depending upon which state you are in.
The solution? Planning in advance. Employers should consult with their trust providers as soon as layoff discussions begin to ensure they have sufficient reserves and a financial plan to cover reimbursement costs.
“A key difference is that reimbursing employers will see an immediate cost [when laying off employees] whereas a taxpaying employer could pay higher taxes over the next two or three years,” Adams says.
Lessen the burden on employees
Being laid off in times of national crisis is a devastating and confusing experience. But employers can reduce some of that stress by helping separated employees find new work.
If you do have to let employees go, consider investing in outplacement services and letting them use your organization’s phones, computers, and scanners to respond to employment openings and to create resumes.
You can also allow employees to take time off to do online or in-person interviews, and reach out to contacts at other organizations to let them know you have workers seeking new job opportunities.
ABOUT THE AUTHOR
Lia Tabackman is a freelance journalist, copywriter, and social media strategist based in Richmond, Virginia. Her writing has appeared in the Washington Post, CBS 6 News, the Los Angeles Times, and Arlington Magazine, among others.