How to Decide if You Need to Layoff Employees

After months of hearing about the Great Resignation, during which unprecedented numbers of employees resigned or quit their jobs, the news cycle has switched gears and is now focusing on impending layoffs. Companies across industries are contemplating or in the process of letting go of some of their employees.

Deciding to lay off employees is never easy, and it might not always be the best option for your company. Here’s what you can do to determine if you need to lay people off and how to handle the matter as gracefully as possible.

Weigh the Alternatives

Laying people off isn’t your company’s only option when funds are tight or you’re facing an uncertain future. Alternatives to layoffs are available and can help keep employee morale and productivity up. Among your options are:

• Instituting a hiring freeze: You can decide to keep your current team and not hire new people for positions that are open. You could also institute a freeze on raises and promotions. When someone leaves your company, you can freeze hiring for the newly vacant position.
• Limiting overtime: If employees regularly work more than 40 hours weekly and receive overtime pay, you can become stricter about limiting their hours to just 40 per week.
• Reduce employees’ hours: Another option is to have hourly employees work fewer hours each week to reduce labor costs.
• Offering buy-outs: Some employees will happily part ways with your company when given enough incentive to do so. Employees nearing retirement or who are looking for a change might be inclined to accept a buy-out package.
• Reducing costs elsewhere: Your company might find ways to reduce its spending in other areas, eliminating the need to let people go.

Review Your Company Policies

If you decide that you do need to lay off employees, review your company’s policies or previous layoff procedures first. You want to avoid any whiff of trouble or legal concerns as you start letting people go. Your company’s policies will most likely outline the process of laying people off, such as how to decide who to let go, and the severance you need to pay people.

Even if your company doesn’t have a clearly defined layoff policy, its past behavior might determine how you lay off people now. For example, if you’ve previously given people severance when letting them go, you’ll need to do so now, even if that isn’t clearly spelled out in your policy.

If you’re not required to provide laid-off employees with severance, doing so can be worthwhile. It minimizes feelings of ill will from the people who got laid off and helps keep your company’s reputation from tanking.

Decide Who to Let Go

Next, you need to decide which employees to lay off. In some cases, the decision can be easy, such as if you’ve decided to lay off an entire department or if your company typically lets the people with the least seniority go.

Do be cautious when letting people go, though, as if you lay off multiple people in protected classes, such as people over age 40 or who belong to a certain race or ethnic group, you risk creating an adverse effect on that group, which can complicate the process. It’s best to have hard numbers to justify your reasons for letting people go. For example, you might let go of an entire department if it regularly missed its sales goals or productivity targets.

Give Enough Notice

If your company has more than 100 employees, you need to give them at least 60 days notice if the layoff will let go of at least 50 people or lead to the closure of a facility. Giving people enough notice allows them to prepare for the layoff financially and take steps to find another job.

Don’t Go Overboard

Letting employees go can be good for your company’s finances, up to a point. But you need to keep enough employees on your payroll to maintain productivity levels and keep your business operational. Make sure you retain enough staff to keep up with demand and keep business flowing smoothly.

The virtual CFOs at New Direction Capital can help your company decide if layoffs are necessary and if so, how to conduct them to minimize damage. Contact us today to learn more.