Employment costs often comprise the greatest area of expense within a company. Salaries, benefits, taxes and related insurances typically constitute more than half of an organization’s operating budget, and in service industries, it can be significantly higher. As such, they are often the first area of expense to be considered when companies are forced to cut costs and reduce overhead.
This trend is clearly supported by the newest figures released this month by the Employment Development Department. Nationwide, unemployment remains at 10% into 2010. In California, the unemployment rate also remainsat historical highs, hovering around 12%.
If an employer is considering layoffs or downsizing their workforce, they must be aware of the complex regulations and potential pitfalls relating to such a strategy. As such, many employers engage the services of a Human Resources Outsourcing firm or Professional Employer Organization to assist them in the process. Click here to learn more how an HR Outsourcing firm can reduce the risks of employee lawsuits.
If a company opts to downsize internally, they should take the time to research employee layoff rules and regulations, and should take a proactive approach with their staff to minimize the impact on employee morale and productivity. Below are some areas to consider before laying off staff:
Are Layoffs the Right Choice?
Firstly, consider if laying off staff is the best choice. While letting employees go may seem like the quickest way to reduce costs, there may be safer alternatives. Consider the following:
- Freeze new hires, pay or bonuses
- Reduce salaries, fringe benefits, or 401 (k) matching
- Reduce work hours or adopt alternative work schedules
- Make selective, performance-based terminations
- Provide incentives for early retirement
Review and Prepare.
If layoffs are inevitable, be proactive by forming a committee to address the multitude of areas which are likely to be affected. Be sure to review your company’s Employee Handbook and review your termination policies. Be sure to ask, and answer, the following questions:
- Have you reviewed your company’s Progressive Discipline policies?
- If so, was the system followed?
- Are there written employment contracts?
- Are there union contracts? Do they limit your right to terminate?
Additional areas to consider include:
- Establish an objective, financially beneficial reason to layoff staff. This will be important if your motives are questioned in the future.
- Review your workforce and determine which employees will be selected for layoffs.
- Train managers and supervisors on proper layoff procedures.
- Draft enforceable severance and release agreements.
- Prepare COBRA notices.
Reduce your risk of lawsuits.
There are many federal and state laws governing layoffs. You should be certain to study the laws, or contact an expert who can help. The most relevant law governing layoffs is the Federal Worker Adjustment and Retraining Notification Act (WARN). This law affects employers with more than 100 employees. If the employer shuts down a site or lays off more than 50 workers in a 30 day period, they are required to provide employees 60 days written notice prior to these layoffs. Additionally, they must notify the relevant federal and state agencies.
Additionally, you should be fully aware of federal guidelines and laws that regulate the termination of employees. These include American With Disabilities Act (ADA), Title VII, California’s Fair Employment and Housing Act (FEHA), as well as wrongful termination laws, wage and hour laws, restrictive covenants, and disparate impact, to name a few. Be sure to consult with an attorney of professional HR firm to determine your risks and exposures.
Consider the human side of downsizing.
Employees are people too. Whether you intend on keeping, or firing an employee, treat them fairly and with respect. Recognize that layoffs affect all employees, not only those being let go. It is likely that the morale of all employees will be affected, so show compassion in all your activities; it is likely to go a long way in shoring up the respect of your staff.
Bonuses and incentives.
The remaining employees will most likely be responsible to pick up the workload left by their departing coworkers. Best practices encourage bonuses or recognition rewards to show your appreciation for your staff. In tough economic times this may not be feasible, but many inexpensive incentive programs exist. Be creative, think out of the box, and you and your remaining staff will enjoy a successful business relationship.
Many employers find the task of conducting even a single termination daunting, not to mention initiating company-wide layoffs. An alternative to “do-it-yourself” is to contract with a professional Human Resources Outsourcing firm, or with a Professional Employer Organization (PEO) and to have them conduct the layoffs on your behalf |
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