A new year is upon us, and for many small business owners, that means taking a long hard look at the financial condition of your company. In some cases, particularly in successful years, this can be a positive experience. Unfortunately, if the past year was difficult, then times spent evaluating your budget can quickly turn into an unpleasant experience.
If the latter sounds like something you’re currently dealing with, then it’s likely you’ve made some cuts, but despite that, downsizing (i.e., a layoff) still seems inevitable. And though that feels awful, know that it’s a difficult reality of owning a business and being honest with yourself and your employees is commendable, even if it doesn’t feel that way.
While a layoff certainly is not going to be pleasant, there are some ways you can make it less stressful for all those involved, including you, those included in the layoff, and those who will be left behind to carry out the day-to-day operations.
Understand & Play by the Rules
There are a variety of concerns that creep up when an employer decides they need to move forward with a layoff, but the legality of it may not always be the first one that comes to mind. However, failure to follow government, state, and company policies can spell big trouble for you.
For starters, you must have a reasonable and legitimate reason to choose that path. Declining sales, financial troubles, etc., are all legitimate reasons, but gentrifying your workforce or “cleaning house” are not.
Assuming you have a legitimate reason for a layoff, your next step should consulting both federal and state labor laws, which, in some cases, have specific requirements for executing a layoff.
For example, the Worker Adjustment and Retraining Notifications Act (WARN), which was enacted by the U.S. Department of Labor, requires that any company with over 100 employees must provide workers with 60 days’ notice of an impending layoff.
While many small businesses may not have the staffing numbers to fall under that requirement, some states (CA, IL, MD, NJ, and NY, to name a few) have regulations that impact companies with at least 50 employees, making it essential that you check state laws.
Finally, you will also need to review any employee contracts, collective bargaining agreements, and company policies to verify that you are adhering to both of those items.
Determine Clear & Fair Criteria
Another thing that must be taken into consideration is “who” will be laid off. To do this, most experts agree that employers should establish a set of criteria. Of course, this opens the door to both objective criteria, like seniority and performance, and subjective criteria, like motivation and quality.
Regardless of what criteria you set, be sure that it is universally applied. Further, once you create the list of workers to be included in the layoff, take an honest look at the list to verify that you are not discriminating or using age, gender, or race as a basis for your decision.
Break the News in Person
Thanks to technology, there are a variety of ways to lay someone off. Emails, texts, instant messages, etc. have all been used (a poor decision, in my opinion), but the best way to do it? Face-to-face. Breaking the news to your employees won’t be easy, but when employees hear it directly from the owner’s mouth, it can make a huge difference.
It’s likely you’ve grappled with this decision for quite some time, and the fact that you had a hard time with it can hold a lot of weight with those who will be packing their boxes at the end of the day.
Not only does it mean something when the owner of the company takes the time to meet with the employees face-to-face and subsequently shares the difficulty they’ve faced, it also allows for transparency. Discuss why the decision had to be made, and be as empathetic as possible as you explain what lead to the decision. Failure to be at least partially transparent in your efforts can lead to a host of problems, including disgruntled employees who may seek legal action as well as an endless gossip mill that will plague operations long after the initial dust has settled.
Make the Exit as Smooth as Possible
The events that take place before an employee leaves the building for good can play a major role in their overall experience, including their mental and emotional wellbeing. Layoffs can be confusing for everyone, but that’s especially true for those that will be parting ways from the company.
Navigating health insurance, the job search, and unemployment benefits can be complex. Taking some of the confusion out of the equation can go a long way.
If the option is available for you, consider outplacement services; however, they may not be in the budget. Instead, and equally beneficial, arrange time for your human resource department (or the closest thing to that) to meet with those leaving the company to offer guidance on how they can navigate issues like insurance and benefits.
The time spent guiding employees through the process shows that despite the decision, you still care about their wellbeing and future success.
Keep the Remaining Workforce in Mind
In the days leading up to and immediately after a layoff, it’s easy to think only of those who will be leaving the company, however, it’s essential that you consider those who will remain with the company as well.
Even in the best circumstances, a layoff can quickly lead to gossip, rumors, and an otherwise hostile or anxiety ridden workplace. Employees may wonder if there are more layoffs to come, leading them to feel guarded, threatened, or worse, at competition with other employees. Additionally, there will also be a period when those still employed will need to compensate for decreased staff numbers.
When planning for a layoff, include a plan for dealing with a loss of staff, the extra burden on other employees, and a way to cultivate skills that may have left with those included in the layoff. It’s also important to immediately and concisely illuminate fears. Assuming you don’t anticipate another mass layoff in the near future, let remaining employees know that their skills are valued and that their jobs are currently safe.
Layoffs are often the harsh reality of owning your own business, and making the decision to move forward with one can be heartbreaking. However, take the time to carefully plan and prepare, and you’ll be able to make this otherwise harsh transition just a bit smoother for everyone involved.
This article was originally written on December 19, 2017 and updated on January 27, 2021.
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