Layoff Tips: What to consider before cutting jobs

Though the economy is improving in many parts of the country, business cycles remain a fact of life. Whether your firm is large, small, or somewhere in between, you may be faced with rising costs and declining revenues. This, in turn, may force you to make tough personnel decisions. For a company that’s struggling to survive, layoffs may be a bitter pill to swallow. But in some cases, reducing employee levels may be the only logical remedy for keeping the company solvent and staving off bankruptcy.

Before you take this step, however, it makes sense to consider alternatives. Ask yourself whether expense reductions can be accomplished using less drastic means. A freeze on hiring, promotions, or pay raises may reduce costs to an acceptable level. Cutting expenses in other areas may ease the need for staff reductions. Asking employees to pare down their work hours is another option. And if positions must be eliminated, offering voluntary termination incentives may give employees a choice in determining whether to continue employment with your company.

If these options do not reduce costs to an acceptable level, a layoff scenario may be unavoidable. Nevertheless, it pays to proceed with caution. A phased approach that attempts to curb the emotional and subjective elements of staff reductions is often the most prudent.

  • First, make sure you know what the company will need going forward. Focus on positions and departments, not individual workers. Hacking away indiscriminately is a sure way to damage your company’s prospects further.
  • Second, ensure that you have a legitimate business reason for laying off employees. This might include declining sales, loss of a key contract, or burgeoning supply costs. Make sure you can’t be perceived as discriminating against older workers or punishing a particular class of employee. Doing so, besides being unethical, may invite lawsuits.
  • Third, follow written personnel policies that describe when and how your company will conduct layoffs. (If you haven’t established such rules, don’t wait for a business downturn to document them.) Check any employment contracts to ensure that their provisions aren’t violated, including an employee’s right to severance pay.
  • Last but not least, regularly communicate with your staff, preferably well in advance of any layoff action. Keeping employees informed about business realities can mitigate hard feelings and allow them to adjust, if necessary, to employment apart from your company.