When economic indicators point toward a recession, employers may need to take measures to reduce costs and increase operational efficiency. Workforce reduction is one of the measures some employers may choose to take—though this is a particularly difficult decision to make.
If as an employer you’re considering this route, there are many steps you can take in the planning and execution process which can minimize risks of liability and decreased company morale. Here are some best practices and tips for reducing workforce:
Alternatives to Layoffs
Before you decide to permanently reduce workforce, there are a number of potential cost-saving options that you can consider, including:
- Hiring and wage freezes
- Postponement of wage increases
- Reducing fringe benefits
- Reducing your company’s insurance premium expenses
- Reducing work hours with proportionate pay cuts
- Discontinuing the use of temporary and part-time employees and redistributing their work to permanent employees
Whether layoffs, early retirement or other measures are taken, sensitivity in communications with employees is essential in order to maintain morale. As such, your first order of business should be to explain the company’s financial position and enlist employee support whenever possible.
Planning For Workforce Reduction
Once it’s been determined that a workforce reduction is necessary, it’s the job of operations, human resources and your legal counsel to devise a plan that minimizes the risks of litigation and ensure there is ample sensitivity and communication during the process.
Before taking any action toward reduction in force (RIF), consider these steps:
- Document the financial conditions necessitating the RIF
- Identify goals of the staff reduction
- Identify the job functions and/or skills that are essential to successful operations
- Eliminate and/or consolidate unnecessary jobs
- Review limitations or liabilities created by collective-bargaining agreements, employment contracts, etc.
- Consider using a RIF committee for evaluating positions
- Set a timetable for carrying out the RIF
It should go without saying that RIF should never be used as a substitute for terminating employees who are performing below standard. It’s also best to be sensitive to situations where an employee can show they were laid off close to the time when they would have qualified for a benefit (e.g., pension vesting rights, retirement eligibility, etc.), were chosen because of age or because they earn higher pay, as these can be seen as discriminatory.
Meet with your legal council to gather the information you need to know and the requirements you need to adhere to when it comes to things such as state or industry related laws, severance benefits, pension plans, collective-bargaining agreements and more. Talk with your legal council to ensure that your RIF will not violate (if applicable to your business or industry) the:
- Older Workers’ Benefit Protection Act (OWBPA)
- Age Discrimination in Employment Act (ADEA)
- Equal Employment Opportunity Commission (EEOC)
- Worker Adjustment and Retraining Notification Act (WARN Act)
Communication Is Key
Employees affected by a staff reduction should be advised of the RIF in as professional and supportive a manner as possible. You should be prepared to cope with employee shock, surprise and inability to absorb every detail. Here are some examples of how this may be conducted.
- If possible, two members of management should meet with affected employees individually
- Communications should be brief and direct as to the company’s decision
- If asked, those communicating to the employees should be able to briefly explain the basis for the decision
- The communicators should also explain the following:
- Recall/rehire rights, if any
- Severance benefits (if any), health insurance conversion rights, and other monetary issues
- Outplacement or other transitional services being offered, if any
After Workforce Reduction
As a means of goodwill after a workforce reduction has taken place, consider providing outplacement services to assist affected employees in obtaining new employment.
The remaining employees should be provided with prompt and accurate information about the desired goals and anticipated timetables associated with the RIF(s). Another great idea to keep morale high is to provide remaining employees with modest incentives (monetary or otherwise) for increased productivity.
Workforce reductions provide unique opportunities to reorganize and streamline operations.
To maximize the cost savings affected by staff reductions, existing processes or operating procedures should be redesigned to improve efficiencies and eliminate the duplication of effort and expense. Some ways to accomplish this are:
- Job cross-training
- Restructuring to avoid unnecessary layers of supervision or management
- Evaluating existing business practices with the goal of reducing hidden costs such as travel, entertainment or recruitment expenses
We hope the information provided here will help you and your business understand the options available if you wish to avoid a workforce reduction, as well as provide you with important tips for planning an RIF if necessary.