In light of the revenue losses caused by the coronavirus pandemic, your business may need to conduct layoffs, furloughs, or pay cuts. This guide will help you navigate the layoff process while supporting your team and maintaining compliance with employment regulations.
We prepared this help guide to assist small business leaders with practical steps, best practices, and specific guidelines for managing and leading their companies through these difficult changes.
Furloughs, Pay Cuts, and Layoffs Guide
1) Decide on employee layoffs, furloughs & pay reductions
This is probably the hardest part, deciding how you want to reduce payroll costs to meet urgent business needs.
If you believe your business will recover soon, consider furloughs or pay cuts, since both can be "undone" more easily than permanent layoffs. A furlough stops the paycheck but may continue health insurance benefits, helping the full-time employee maintain critical coverage. Employers may determine the length of the furlough—usually several weeks—but the longer it lasts, the greater the risk of displaced employees leaving permanently.
Paycheck reductions are typically the least attractive option because they directly affect every remaining employee (presumably your top performers). While some employees often accept temporary cuts, even the most loyal team members will lose patience with a pay reduction lasting beyond a few weeks.
If you opt for pay reductions, be sure to apply them from the top down. Review every decision with HR professionals to ensure compliance with federal, local, and state laws, including any layoff notice requirement that requires employers to provide written notice under the WARN Act or similar regulations.
2) Avoid multiple rounds of mass layoffs
Layoffs are emotionally difficult and can erode trust and morale among co-workers who remain. Leaders often underestimate how deeply to cut and end up initiating multiple layoffs. However, large-scale layoffs in stages heighten fear and stress across the organization.
It's more effective to conduct one thorough layoff, based on organizational strategy, rather than making multiple employees go through repeated rounds of uncertainty. The layoff experience is never easy, but clarity and decisiveness can reduce long-term harm.
3) Severance pay and COBRA
A severance package offers financial support and signals goodwill. While employees must understand it's not mandatory, it’s common to offer 2–8 weeks’ severance pay based on tenure or position.
Include severance package terms in a formal agreement, and the employee may be required to sign a Release. Always consult Legal Counsel and your human resource team for further guidance on this point, as well as your Severance Agreement document.
Some employers may choose to cover health insurance benefits (COBRA) for 2 to 3 months. Rather than managing this separately, it can be simpler for HR and payroll teams to add the cost directly to the severance package amount.
Also, inform affected employees of how this may impact their eligibility for unemployment insurance or unemployment benefits. Each state has different rules, so offering to answer questions can reduce confusion.
4) Have the courage to do it properly
When delivering a layoff notification, do it respectfully and directly. The layoff conversation should happen face-to-face whenever possible, or via live video call if remote. Never send a layoff notice via email, recorded video, or in a group setting.
It's one of the worst things a leader has to do, but don't try to save time or agony by terminating anyone via email or a recorded video, or in a group setting.
If you’ve been laid off, it can feel impersonal and devastating when not handled with dignity. As a leader, look departing employees in the eye and show respect, even in the hardest moments.
These displaced employees were part of your company’s journey. How you treat them during their final moments, leaving the company, will shape how the rest of your staff views your leadership.
If possible, consider offering an outplacement service to support departing employees in their job search. It demonstrates care and makes the transition smoother.
Explain the reasons for the layoff clearly and be ready to answer questions. Transparency helps build trust with those staying behind and minimizes resentment.
They won't like it, but they can handle it. And remember, your remaining staff are watching very closely how you handle this.
5) Get to the point, include HR, and use common sense
There is no way around the awkwardness of laying someone off, so it's best to get straight to the point while being empathetic, professional, and honest.
Answer the employee's questions without getting emotional or defensive, even if they get emotional and argumentative. It's important to include an HR person in the meeting.
If you schedule a meeting on the calendar, do not include HR on the invite, and use a secure video meeting to avoid uninvited guests. Don't send the termination paperwork until after/during the call/meeting.
For more detailed guidance, download our Guide & Checklist for Conducting an Employee Layoff with Care.
6) Messaging to the workforce
Communicate with your team immediately. Be open and honest.
Balance optimism about the future (if you're genuinely optimistic) with the brutal facts of the current situation. Be careful not to sugar coat nor to be too "doom and gloom" (unless the facts call for it).
Do not promise there will be no further cuts! Resist the temptation to tell the remaining employees that they represent the best performers, and don't be critical in any way of the laid-off employees.
Stay positive, focus on the path forward, the challenge and opportunity that requires everyone to rally, and to leverage the work all (including the outgoing employees) have put into the company.
7) Don't apologize, be a leader
Every great team at one point or another has had to make difficult cuts. It's one of the hardest parts of being a responsible, results-driven leader.
Don't be cavalier about the cuts, but don't apologize either. If you have done everything possible to avoid the situation and have behaved consistently with the company's shared values, you will retain the trust and respect of those you lead.
It's a harsh reality that there are many conditions outside of your control, and that's why people seek leaders who face adversity with courage and integrity.
Melita Group offers trusted outsourced human resources services that help you manage sensitive transitions with professionalism and care. Our team provides comprehensive support, including payroll outsourcing, employee benefits outsourcing, and more, so you can focus on leading your team forward. Reach out today to explore solutions tailored to your organization’s needs.
Disclaimer: Nothing in this article should be construed as legal advice or counsel. It's purely our opinion based upon our many years' experience in HR and Leadership Development.
