Workforce Reduction Strategies to Keep Your Business Afloat During the COVID-19 Crisis

When we rang in the new decade, no one could have predicted what the world is now dealing with. Very quickly, the COVID-19 pandemic has altered nearly every area of our lives, including the workplace. Employers of all sizes are grappling with how to keep their businesses operational and profitable while the economy takes a massive hit. It’s a predicament no business wants to be in, but a lot of those decisions revolve around a workforce reduction — an attempt to stay afloat with the leanest staff possible during these challenging times.

What are the factors to consider before initiating a workforce reduction? Are there alternatives to layoffs and if so, what makes sense for your business? And what are the legal issues that come into play with a temporary or permanent layoff?

Potential Initial Steps to Avoid a Large Layoff

When considering a possible reduction in force, there are a few practices to keep in mind. Working through the following can help you analyze your overall financial situation before initiating deep staff cuts:

• Estimate the impact on revenue — Look beyond the next couple of months to formulate a 6- to 12-month income forecast. It’s not easy to predict what’s going to happen through the rest of 2020, but do your best with the numbers you gather.
• Tighten up all other expenses — You can expect some expense categories to decline, such as cost of goods and other supplies that scale to sales. Other categories that could be cut drastically without much effort include travel and entertainment.
• Review incentives to maintain payroll — Instead of permanent layoffs, you may be able to secure a forgivable loan from the federal government or pursue a private grant through one of the many organizations offering them.
• Share the burden — You may be able to minimize the impact of lost revenue by reducing salaries among your top managers and senior leaders. Doing so also sends a clear message to your workforce that everyone is in this predicament together, and that sacrifices are being made at every level.
• Pursue additional payroll protections — Perhaps you can reduce payroll costs in the short-term by decreasing pay or work hours. Other options are implementing temporary furloughs until the business starts to recover, halting bonuses, banning overtime, pausing company matches into retirement funds and reducing vacation days. Another alternative is to offer voluntary unpaid leaves of absence, which employees may choose to take for their own personal reasons.

Carefully Select Which Employees to Cut

Letting employees go is an extremely difficult undertaking for any manager or business owner. Not only is it emotionally taxing, but it also must be handled sensitively and fairly to avoid any legal complications. Here are a few guidelines:

• Consider which business functions are essential during this period — This will depend on your industry, as well as whether you are under a shutdown order or simply experiencing sales decline.
• Determine how many people you need to perform each function — Be realistic and use objective data wherever possible. For example, based on the projected sales decline, how many orders will need to be shipped or how many calls will need to be handled?
• Manage the impact on staff — Try to minimize the number of times you make cuts. Ideally, it’s better to dismiss more people at the same time vs. cutting a few each week. This reduces stress for the employees who remain and helps them stay as productive as possible.
• Use consistent criteria for final decisions — You may choose to look at tenure or seniority to make the determination — or relative productivity for certain positions, such as sales or production. It’s practical to cut temps and part-time workers first. And certainly, you’ll need to identify any specialized skills or knowledge your business can’t do without.
• Avoid discrimination — As you make your decisions, be sure to consider any potential adverse impacts on protected classes of employees that could be considered discriminatory. Be mindful of all federal laws, which protect employees based on race, color, religion, national origin, gender, age, disability and a few other factors. And don’t forget state and local laws, which often add protections based on sexual orientation, marital status and even smokers.

If you’re considering a group of employees who all perform essentially the same function, the fairest approach is often to cut by hire date (assuming all other factors are equal).

How to Conduct Layoffs and Improve Communication

You’ve made the tough decisions and now must act on them. Here are a few tips on how to address affected employees:

• Be upfront about the realities — Everyone is keenly aware of the global pandemic and its hard-hitting effects. Rather than shield employees from what the company is facing, be open and honest about the impact of the virus — and your objectives to cut costs in responsible ways during extraordinary circumstances.
• Prepare a script or a detailed outline to follow — Delivering this message is never easy, and a script helps you keep to the point and communicate consistently to each employee. A script also helps make sure you don’t skip important points.
• Indicate the status of the layoff — Specify whether it’s a temporary furlough or permanent layoff, and discuss what’s included in the final paycheck. Prepare a written document outlining any severance benefits, health insurance options and COBRA election procedures, 401(k) options, outplacement services and details on any other benefits or services being offered.
• Be clear about future employment — Explain whether the employee will be automatically called back to work when it becomes available. If it’s a permanent layoff, let employees know whether they will be considered for new positions before external applicants are considered.
• Inform the rest of your workforce — Control the rumor mill and reduce misunderstandings by letting your remaining employees know about your actions. This is a good time, too, to state your company’s commitment to meeting the challenges of COVID-19; that you’re keeping an eye toward future stability and striving to cause as little disruption to normal operations as possible.

Managing Additional Legal Factors with a Reduction in Force

If you’re pursuing a reduction in force, you must uphold certain employee notification laws, including the federal Worker Adjustment Retraining and Notification Act (WARN Act). Typically, the WARN Act requires covered employers to provide 60 days’ advance notice to employees due to a plant closing, mass layoff or even temporary layoff. However, the unforeseeable businesses circumstances surrounding the COVID-19 emergency are likely to act as an exception to this requirement. That being said, it’s still wise to notify employees as soon as ‘practicable,’ along with an explanation of why the 60-day notice period was reduced.

Be sure to review state laws, too, as some states have their own requirements related to mass layoffs and plant closings, which may apply to the current situation. In addition, many state and local regulations require employers to provide written notices to any employee who is laid off. These notices, which cover topics such as unemployment insurance and separation from the company, are changing rapidly as new COVID-related laws are passed.

With the Mandatory Employee Handout Service, you can get access to electronic versions of all employee handouts required by federal, state and local laws to be distributed directly to employees based on triggering events such as leave requests or separation. Handouts are updated in real time as laws change, and cover all the latest COVID-related notices.

For additional guidance on how to address the many challenges with COVID-19, including workforce reductions, check out the webinar, COVID-19 and the Workplace: How to Comply with Rapidly Changing Legislation.