Need To Cut People Costs? You Have More Options Than You Think.

As the Covid-19 crisis increases, we’re getting an uptick in questions about options for adjusting team size and structure. The good news is that there are options, and you might be able to use a combination of options to meet changing business goals. Here’s a quick overview of the most common options, and some important considerations for each. 

Layoffs

CONSIDER THE LONG-TERM IMPLICATIONS

Layoffs, or reductions in force (RIFs), are typically used when a business is undergoing a significant change in direction, such as eliminating a product, a function, or a department. Although there is such a thing as temporary layoffs (see furloughs and standby), layoffs are more typically permanent.

If you’re considering a layoff, it’s critical to look ahead to the next 12 to 18 months, and to assess whether the department or function you are laying off is likely to be needed again in the near future.

• If your strategy and plans change down the road, the loss of productivity and expense of rehiring can be significant.
• It’s legally risky to lay off a full- or part-time regular position, and then rehire for the same role (full-time or part-time) a few months later.
• It’s legally risky if a laid-off employee could claim that their termination was for reasons other than strategic changes.

It’s important to weigh all the factors. Companies looking to cut short-term costs should consider alternatives like furloughs, standby, and shared work arrangements first.

IMPORTANT CONSIDERATIONS

If you determine that layoffs are appropriate and necessary for your business, it’s important to make sure you’re covered in terms of compliance.

• Work with your attorney to ensure everything is in order and avoid possible discrimination claims.
• Consider your selection criteria, and be transparent about them. Make sure not to lay anyone off due to poor performance or behavioral reasons, which should be handled as a termination for cause.
• Understand notice requirements—for example, WARN Act and ADEA requirements.
• Consider what type of severance package or continuation of benefits you might be able to offer, including possible outplacement services. Also consider new legislative benefits that terminated employees may be eligible for as a result of Covid-19.
• Prepare your documentation before meeting with the team. Note that separation and release agreements and layoff notification letters require separate versions for employees under and over age 40. For each employee being laid off, you will need a packet with all required documentation:
  • ADEA chart and cover letter
  • “Under 40” or “Over 40” version of layoff notification letter
  • “Under 40” or “Over 40” version of separation and release agreement, if applicable
  • Outplacement info, if applicable
  • Eligible benefit information
• Have your talking points and script ready so you can communicate clearly to your team.
  • To those being laid off: Keep it brief. Be empathetic. Don’t try to soften the blow by trying to see the bright side. Be sensitive, but get right to the point so the message is clear. Communicate to them first, individually and in person if possible. If remote is the only option, make sure it’s a video call.
  • To the rest of the team: Advise them that layoffs have occurred, after you’ve met with those being laid off. Don’t get into too many details, but understand that they may now be worried about the security of their positions. Expect questions, but follow the same script as above.

It’s also worth considering how to handle the difficult process as thoughtfully and respectfully as possible.

• Try to do layoffs as early as possible in the month. Because benefits usually end on the last day of the month, this gives employees some buffer to make arrangements and ensure coverage. You can also extend employee benefits for a period of time.
• Consider the timing. If you’re holding in-person meetings, schedule them for later in the day so people have more privacy as they collect their belongings. If the layoff is occurring remotely (see delivering difficult news remotely), provide as much information as you can about how they can respectfully obtain or receive personal items left at the office.
• Offer severance packages and outplacement services when possible.

Furloughs and Standby

KEEP YOUR TEAM INTACT FOR A FIXED PERIOD

In our experience, most people are familiar with layoffs, but furloughs and standby are great options that tend to be underutilized. These are basically temporary layoffs—you can keep your team together when business has slowed or stopped for a shorter period of time, and your employees can collect unemployment benefits without having to comply with the job search requirements. These two options are similar but have different mechanics for activation with Employment Security. Standby generally requires the employer to provide an expected return to work date, whereas a furlough may not require that.

Here are some cases when furloughs or standby might be appropriate:

• If the interruption is likely to be short-term, and you expect or hope to return the employee to regular status.
• For seasonal employees, or when there is an expected or unexpected shortage of work, but an expectation of return.
• When business has slowed or stopped and you want to keep the team together for the long term while you do business planning.

IMPORTANT CONSIDERATIONS

• If you aren’t confident that you will be able to bring team members back within a few months, it may be better to just cut ties so they can move on more quickly.
• Remember that wage and hour laws (FLSA – Fair Labor Standards Act) still apply during furloughs and standby.
• Have your talking points and script ready so you can communicate clearly to your team.
  • Make sure the employees understand what a furlough or standby is and walk them through next steps.
  • Expect lots of questions.
  • If you’re communicating this in a group meeting, be sure to stay until the end of the meeting so employees can ask questions privately if they need to.
• Prepare a letter for your employees being furloughed or put on standby, and have it reviewed by an attorney before meeting with your team. If this is their first experience with a furlough or standby, it may be hard for them to take in all of the information conveyed during the meeting.
• Check in frequently during the furlough or standby period. Ask them how things are going. Stay engaged, but don’t ask them to do any work.

Shared Work Arrangements

REDUCE HOURS WHILE MAINTAINING FLEXIBILITY

SharedWork is a voluntary business sustainability program offered by the Employment Security Department. It provides flexibility for employers to retain employees at reduced hours. Here’s how it works:

• Employers cut employee hours rather than employee jobs.
• Employees can collect partial unemployment benefits for the hours lost without the job search requirements. They’ll generally receive 50% of the unemployment benefits they qualify for, while also receiving a partial paycheck from you.

IMPORTANT CONSIDERATIONS

SharedWork programs offer a safety net when times are lean but are expected to improve. Shared work can be a good first step when you are facing business challenges or a temporary setback, but you want to keep your team intact.

• You’ll need to be able to keep your team busy for at least 50% of their time.
• Shared work programs allow flexibility because you can have more than one plan, and they can apply to one or more organizational units in the business.
• You can also adjust your level of participation from week to week (for example, amount of time or number of employees), which offers additional flexibility during periods of uncertainty.
• Once you figure out the details, have your talking points and script ready so you can communicate clearly to your team.
  • Make sure the employees understand what Shared Work is. Be prepared to talk them through the process.
  • Expect (and encourage) lots of questions.
  • Remember that you’re participating in this program because you want to keep your talent, so be sure to emphasize that.

What’s right for your company?

We recommend doing a business analysis using all four scenarios before making choices. You might also consider a combination of choices, such as SharedWork arrangements for certain departments or teams and furloughs, standby, or layoffs for others. 

Whatever you decide, remember that how you communicate your decision is as critical to your brand as your onboarding and orientation. If you are laying off any employees, make sure they feel valued and understand that the decision to let them go isn’t personal. Remember that no matter what steps you take to help your team with the changes, there will likely be concerns, anger, sadness, and fear. Think about what you can say and do to make it more likely that both departing employees and remaining team members will say positive things about your company in the future.  

Delivering difficult news remotely

It’s always hard to receive this kind of news, and even harder when it can’t be face to face and stress levels are already high. Here are some things to keep in mind when delivering difficult news remotely.

• Use video if you can to establish a personal connection. 
• Test your technology ahead of time.
• Allow time when you first get on the call to ensure their technology is working.
• Make an extra effort to connect. Treat the situation the same way you would if you were sitting across from the person in the same room. 
• Make sure you are prepared and can forward their “packet” to them immediately following the call, if needed.
• Demonstrate patience and empathy. Give employees time to process while sticking to your script.
• Assume that your remaining teams will learn “how” you treated these difficult conversations with their co-workers, even when working remotely. Align your approach with how you want to be thought of and remembered as a leader. 

Keep in mind that as a leader, the decision-making process has given you time to process, but for those just learning about those decisions, that process is just beginning. It will take a while for people to digest the news, whether they’re being terminated or staying on. Give your team time and space to process. They may not respond in the moment, but keep checking in.

MORE RESOURCES

• Supporting Your Team Through a Difficult Downsizing
• Guidance on temporary layoffs, standby, and furloughs, including updated information for Covid-19, from Washington State Employment Security Department
• SharedWork program details from washington State Employment Security Department

If you need assistance with running a business analysis against these options or coming up with a creative solution that meets your short-term and long-term goals, we are here to help.