Guidance for conducting layoffs, furloughs, and pay cuts

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In light of the revenue losses caused by the coronavirus pandemic, your business may need to conduct layoffs, furlough or pay cuts.

We prepared this short guide to help small business leaders with some guidance and best practices for managing and leading their companies through cutbacks.

1) Decide on layoffs, furloughs & pay reductions

Probably the hardest part, deciding on how you want to reduce payroll costs.

If you believe your business will recover soon, consider furloughs and pay cuts as those can be “undone”. Otherwise, bite the bullet and consider a layoff.

Under a furlough, you stop paying the employee, but benefits can continue. You determine the length of the furlough (typically a couple to several weeks) and can extend if needed, but you risk losing the employee.

Pay reductions are typically the least attractive option because they directly impact every remaining employee (presumably your top performers), and even the biggest team players will lose patience for a pay reduction lasting beyond a few weeks.

If you opt for pay reductions, be sure to apply them from the top down. Be sure to review ALL decisions with HR to ensure compliance with federal, state & local employment laws.

2) Avoid multiple rounds of layoffs

Layoffs are difficult and impact the remaining team’s morale. It’s a common mistake for business leaders to cut fewer than necessary.

With each round of layoffs you exacerbate employee fear and uncertainty so it’s better to do one deeper cut.

3) Severance pay and COBRA

Severance pay norms vary widely, but a typical range is 2 – 8 weeks.

It is advisable to condition the severance payment on the employee signing a Release, but speak to your Legal Counsel for further guidance on this point as well as your Severance Agreement document.

For those employers that decide to pay for 2 to 3 months of COBRA coverage, it’s less administration for your HR and payroll staff if you just increase the severance payment by the equivalent amount.

4) Have the courage to do it properly

Layoffs should always be done in person and one-on-one. If it must be done via video call due to circumstances, so be it.

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.

These people are part of your company’s family, at least have the courage to look them in the eye to deliver the bad news. They won’t like it, but they can handle it. And remember your remaining staff is 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 employees

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 consistent 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.

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.

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