What a Small Business Owner Should Know Before Laying Off Employees

Though economists are telling us the recession has come to an end and things are beginning to rebound, the unfortunate result of an economic downturn that has lasted so long and affected so many industries, countries and skillsets is that the recovery is likely to take a very long time to show itself to small businesses.  This being the case, small businesses are still finding themselves having a need to cut costs and layoff employees.

While no business owner likes laying off an employee, those that have been ‘in the trenches’ awhile will typically reach the appropriate conclusion when necessary and begin developing a strategy to do what’s needed. 

However, it’s at this point when many small business owners may find themselves in a difficult situation.  If a layoff has not previously been required, then the small business owner will rarely have knowledge of the laws and issues involved in conducting a layoff with a minimum of risk – to the company and the employees.  The following information should be helpful in guiding you down the path of a worry-free layoff.

WARN Them

One of the most prominent employment statutes is the Workers Adjustment and Retraining Notification Act (WARN) of 1989. The WARN act gives workers and their families time to plan for a transition caused by employment loss. Slightly fewer than half the workers in the United States are covered by the statute, as it only applies if there are 100 or more employees in the company.

According to Heather Gatley, senior partner and vice-chair of the labor and employment practice at the Florida-based law firm of Steel, Hector & Davis, WARN requires employers to give employees and local governments 60 days of advance written notice of plant closings and mass layoffs in the following situations:

• Plant closing – An employment loss during any 30-day period at the single site of employment for at least 50 full-time employees.
• Mass layoff – An employment loss at the single site of employment during any 30-day period that must involve at least one of the following circumstances:
  • A reduction that affects at least 50 full-time employees who make up at least 33 percent of the company’s workforce.
  • A reduction that involves at least 500 full-time employees.

So, what does it mean to you? If your company fits any of these criteria you are required to provide the employees notice of a layoff. Therefore, in order to  A) keep the peace and  B) keep things as productive as possible until the layoff takes place, make sure you develop a comprehensive down-sizing program that takes care of the company – and the soon-to-be ex-employees as much as possible.  You should also insure that you have a plan to take care of the company’s remaining employees, who are just as likely to be shell-shocked as those who are out of work, but will also have the added burden of extra work to make up for those who are gone.

Documenting business justification and protected classes

Though employees would likely not consider it, from management’s point of view, deciding whom to lay off is hardly an easy decision. Senior executives must establish a documented, justifiable business reason for the layoff and analyze its effect on various protected classes of employees, typically defined by age, gender, race, and national origin. Unless the company can prove that its actions were genuine, and not a pretext for discrimination or sleight-of-hand (cutting a department only to resurrect it with a new name and new people), it could face lawsuits, according to Gatley. Federal protected class laws apply to companies with 15 or more employees, and while local laws vary, they typically cover companies with smaller numbers.

So how does a company insure they are fulfilling their legal obligations to employees, while still meeting the needs of the company?  The best way is to hire an outplacement consulting firm who specializes in these projects and can guide you thru them.  Another benefit offered by such firms is their ability to provide Job Search services at varying levels to those employees who have been down-sized.  This helps to make both the out-going and remaining staff feel that the company has been as responsible as possible, and provided every assistance they were able to insure the welfare of all involved

Steps to Downsizing with an Outplacement Progam

Though it may not have occurred to you if your firm is currently experiencing difficult circumstances, making use of an outplacement service can help to strengthen the relationship between your firm and its departing employees.  In spite of the fact that economic or other circumstances may have required that you ask an employee or group of employees to leave your firm, you can show your understanding of the difficult transition they’re about to undertake, and at the same time you can thank them for their previous service to your company.  This can be accomplished by providing outplacement services to ensure they are provided with the tools to move on to the next phase of their careers as quickly as possible.

Historically when most companies downsize, they send employees off with a severance package and little else.  However, companies that want to do right by their former employees enlist the aid of an outplacement firm to help displaced employees transition quickly into new jobs, or advise them on alternate career paths that can lead them to exciting new opportunities.  

And as beneficial as this service may be for the employees, surprising to most employers, it’s also good for the company.  Benefits provided to the firm from an outplacement program can include public enhancement of the company’s image, aiding the company in its reorganization efforts, and reducing the risk of legal liability from downsized employees or government entities who decide that the company did not act in good faith in its downsizing process.

If your company is in a position where it is considering a layoff, I encourage you to consider the following action steps as you finalize your plans.

 

Action Steps

Hire an outplacement service company or consultant – Outplacement firms assist not only in helping employees transition out of the company, but also in helping the company understand the legal issues regarding employee termination. Outplacement firms provide career coaches that work one-on-one with employees by helping them to update their resumes, assess their strengths and weaknesses, and prepare for new career opportunities.  If you’re undertaking a company-wide layoff, outplacement firms can handle the transition process for a single employee, for dozens or even hundreds of employees. And due to their experience, such companies know the type of services and support that former employees need most during this time, as well as ways to make the layoff process easier for both employer and employee.

Make an alumni program part of your outplacement strategy  - Though circumstances may require you to lay off employees in your current situation, you may find your firm needing to rehire them if the company’s financial state improves, the economic climate changes, or if new positions open up for which their skills (and existing company knowledge) would be transferable.   Adding an alumni program to your planned outplacement services allows you stay connected to valued former employees while also providing them with a way to stay in touch with colleagues and friends for support during their transition and beyond.

Financial Impact of Layoffs on a Small Business

With all the downsizing and layoffs in the last year or so, I’ve started to think alot about the effects on small businesses who have been forced to layoff employees.  While these layoffs are typically not as publicly known, in many ways they can have a much higher level of impact. 

The first impact that might be felt is that of the U.S. economy overall from the collective small business layoffs since small businesses are  responsible for between 70% and 80% of U.S. jobs.  With small businesses being at the forefront of the banking trauma going on in recent months, its a safe assumption that they’re having to layoff employees in substantially higher percentages than their larger counterparts.

The second impact, is the effect on each individual small business.  I often wonder if the small business owner really analyzes the big-picture effect of an employee layoff from a financial standpoint prior to making the decision, or do they just think about the actual cash outlay for payroll?  A recent article I read in the Effortless HR Blog lays this analysis out in a very logical, easy-to-understand methodology.  You can read the article by clicking HERE.

After reviewing the article, I challenge all small business owners who are considering a layoff to do some additional analysis before making your final decision.  Make sure you’re thinking thru the additional tasks you will personally have to take on that may prevent you from making sales, which in turn could have an even more adverse affect your firm.

Why Your Firm Needs an HR Professional

One of the questions I am often asked by small business owners is, “I only have one employee, why do I need to worry about human resources issues?”  While I can certainly understand the question – particularly if they don’t have a clear understanding of human resources, I find myself surprised that I get this same question from small businesses that are much larger than a one person firm.  In my career I have worked for (as an employee) and with (as a consultant) a significant number of small businesses that have had several hundred employees and still did not believe they had a need for a staff to perform HR functions (or even a person!).  As many times as I’ve experienced it, I’m still surprised.

However, given that experience, I thought it would be a good topic to broach as today’s blog post as I think it may launch some good discussion.  So here’s my statement of opinion, even if you have only one employee, you need to have an understanding of human resources issues.  And, if you have more than five employees, your understanding of HR and the type of HR program you put in place need to be substantially more comprehensive.  My justification follows.

Even if you are among the smallest of small business owners, you are still going to find yourself dealing with human resources related issues (even if you didn’t understand before today that those issues were human resources issues).  Some of the areas I’m thinking of would include:

·         Finding employees as you need them, and hiring the best ones that you possibly can

·         Once you’ve hired the best person, what programs and policies do you need to put in place to make sure that you can keep them

·         Training programs to help new employees learn company policies & procedures, as well as their new job responsibilities

·         Pay rates – are you paying them too much or not enough; are there any issues with a person being more than another person doing the same work though they have less experience; is there any chance they’ll train with you and then move to your competition because you don’t pay them enough?

·         Non-compete agreements.  While obviously drawn up by your legal advisor, it’s a human resource responsibility to insure that all new employees have signed them and that this information is tracked in their file.

·         Also, company key, equipment, credit cards, etc. – these need to be tracked and monitored  by employee to insure that your company is protected

·         Benefits – even if your only benefit is a paid holiday, there is still tracking that needs to be done; and if your company benefits are more extensive there is vendor identification, bidding, and management; as well as government reporting, tracking by employee and many other tasks associated with benefits.  Also, are your benefits meeting the legal minimum limits required in your state?  Are they competitive enough to help you recruit the employees you need?

·         Payroll – I know that most small businesses think this can be handled by the bookkeeper, however, there are a great many legalities involved at the state and local level with regard to employee payroll administration, time tracking, records management, etc.  If not handled properly, this issue alone can put your company in serious jeopardy!

·         How do you counsel an employee if they are having trouble with a co-worker

·         How do you counsel an employee if they are having performance issues

·         Terminating employees who are not performing or who have broken a company policy (and by the way, development of those policies is another HR issue)

·         Annual performance evaluations that need to be done on every employee

·         Worker’s compensation – are you paying the correct rate?  How do you handle it if someone gets injured at your place of employment or on a jobsite?  Do you know what the procedures are and how it will affect your company?

·         Do you have an employee handbook so that everyone knows the rules and understands them clearly?  If not, this leaves your company vulnerable if an ex-employee decides he or she has cause to sue you.

·         Do you have job descriptions for every position – and performance standards?

Convinced yet?  This is by no means a comprehensive list, but I believe it will give you some perspective on why the average small business owner shouldn’t be trying to handle human resource issues without the assistance of professionally-trained HR staff member or similar resource.

Remember, the right staff can help you build your company to a great deal of success – or they can contribute significantly to its downfall.  As a small business owner, you have enough on your plate with the many hats you are already wearing.  Therefore, it’s not in your firm’s best interest for you to manage the details of human resources legalities and such for which you have no training.  Just as you need a professional skill level in an attorney and an accountant, I would recommend if you still believe that your firm is too small to have a full-time HR need, then you should hire at minimum a part-time staff member or outsource the work to a consulting firm who specializes in such issues.  Either option will give you the benefit of the expertise you need while still keeping your costs as low as possible.

If this article has caused you to re-think the way you are handling your firm’s human resources issues, please feel free to contact us to schedule a free consultation with one of our HR associates to discuss your areas of concern and how we may be able to assist you so you can go back to doing what you do best – increasing the profitability of your company!

Steps to Downsizing with an Outplacement Program

Though it may not have occurred to you if your firm is currently experiencing difficult circumstances, making use of an outplacement service can help to strengthen the relationship between your firm and its departing employees.  In spite of the fact that economic or other circumstances may have required that you ask an employee or group of employees to leave your firm, you can show your understanding of the difficult transition they’re about to undertake, and at the same time you can thank them for their previous service to your company.  This can be accomplished by providing outplacement services to ensure they are provided with the tools to move on to the next phase of their careers as quickly as possible.

Historically when most companies downsize, they send employees off with a severance package and little else.  However, companies that want to do right by their former employees enlist the aid of an outplacement firm to help displaced employees transition quickly into new jobs, or advise them on alternate career paths that can lead them to exciting new opportunities.  

And as beneficial as this service may be for the employees, surprising to most employers, it’s also good for the company.  Benefits provided to the firm from an outplacement program can include public enhancement of the company’s image, aiding the company in its reorganization efforts, and reducing the risk of legal liability from downsized employees or government entities who decide that the company did not act in good faith in its downsizing process.

If your company is in a position where it is considering a layoff, I encourage you to consider the following action steps as you finalize your plans.

Action Steps

Hire an outplacement service company or consultant – Outplacement firms assist not only in helping employees transition out of the company, but also in helping the company understand the legal issues regarding employee termination. Outplacement firms provide career coaches that work one-on-one with employees by helping them to update their resumes, assess their strengths and weaknesses, and prepare for new career opportunities.  If you’re undertaking a company-wide layoff, outplacement firms can handle the transition process for a single employee, for dozens or even hundreds of employees. And due to their experience, such companies know the type of services and support that former employees need most during this time, as well as ways to make the layoff process easier for both employer and employee.

Make an alumni program part of your outplacement strategy  - Though circumstances may require you to lay off employees in your current situation, you may find your firm needing to rehire them if the company’s financial state improves, the economic climate changes, or if new positions open up for which their skills (and existing company knowledge) would be transferable.   Adding an alumni program to your planned outplacement services allows you stay connected to valued former employees while also providing them with a way to stay in touch with colleagues and friends for support during their transition and beyond.

Have You Played the New ‘Layoff’ Game?

What next?  Now we have a game that focuses on the current employment crisis.  While I suppose it has the potential to be educational and help those charged with the task of making layoff decisions think them thru more clearly, it still strikes me as odd that someone thought to make a GAME of this.  Read the info below and access the game, then let me know your thoughts.

Access the Layoff Game

Here are thoughts from one who has played it:

Basically it is a game where you line up workers to lay them off. Each worker has a story you can read before laying them off. Businessmen cannot be laid off. I guess when you get too many businessmen remaining, you are unable to make any more layoffs. There is also a bailout button you can use. A game for the times I suppose.

Here’s what they say on the site:

Developed by members of the Tiltfactor Lab and the Rochester Institute of Technology (RIT) Game Design and Development program, LAYOFF is an examination of the current financial scandal.

LAYOFF uses a simple casual game paradigm to comment on the current state of the US financial crisis. Both friends and strangers face tough times in an unstable economy. Part dark humor, mostly grim portent, in the game players play from the side of management needing to cut jobs, and match types of workers in groups in order to lay the workers off and increase workforce efficiency.

Downsizing Staff Doesn’t Have to be Traumatic – for Companies or for Staff

As more and more people worldwide lose their jobs, many for the first time in their careers, a percentage of those downsized are becoming frustrated with their employers’ handling of the situation and making decisions to take ill-advised actions such as those detailed in the story below.  To be fair, when such an action is taken, it is rarely meant to cause any sort of harm, but rather to express the former employees’ frustration in the hope it will cause change.  Obviously there are a great many reasons for this anger and frustration, but among them is one that is unlikely to  be discussed – firms that handle their downsizing in a clumsy, inappropriate manner without regard to the needs of long-time loyal employees.

As an experienced Outplacement Consultant, I have been involved in a significant number of layoff actions for firms of all sizes.  The ones that are typically most successful are those that have been well-planned, have used my company (or a similar one) to develop and implement a process for the downsizing – for the company and the employees (those being laid off AND those remaining), and where the company has been open and honest with the reasons, the timing, and other relevant information.  Obviously, while the word “successful” is one I am hesitant to use, for the purpose of this example it is appropriate.  What I mean by “successful” is a layoff where the terminated employees do not feel mistreated and are as well taken care of as possible with services to help them obtain new employment, where the remaining employees have a clear understanding of the current and future situation, and where the employer has provided notice and treated its employees with respect;  and all of these actions have resulted in a well-mannered, well-organized layoff with terminated employees being provided resources and opportunity, remaining employees being confident that their jobs are secure and their former associates have been well-treated, and where the employer achieves its staff reduction without trauma and maybe even receiving a “thank you” or two.

Having counseled employers in this situation, I can state as a fact that most employers cannot comprehend that there will be any reaction to a layoff other than anger and mistrust.   However, I can assure you as a result of my personal experience with employers who’ve done it right – and with employers who haven’t – that those who choose to implement a well-planned, respectful process will actually have employees thanking them for providing them the ability to take advantage of new opportunities.  I’ve seen it with my own eyes!

My best advice to you if your firm is in a situation where it is considering a downsizing is to hire a consultant, plan a process so that you only have to do this once, and take care of your employees (terminated and retained) as well as you possibly can.  It will benefit you in both the short-term and the long-term in ways you can’t imagine – even after the economy has turned and your company has rebounded.  I encourage you to read the article below and take steps to insure that your employees don’t feel the need to take such actions.  Should you need guidance regarding a potential downsizing, please feel free to contact our firm, Strategic Growth Concepts, at info@strategicgrowthconcepts.com.

 

Freedom For Kidnapped 3M Boss

Vidya Ram , 03.26.09, Forbes

But French ire over layoffs and the economy is growing.

Workers at a factory in the French town of Pithiviers have finally released Luc Rousselet, a French manager for American firm 3M who was held in his office for more than a day after being locked in by employees who were angry about layoffs.

Public anger over job cuts and bonuses has been more widespread in France than in the U.S. and Britain, where public ire is largely aimed at high ranking figures in the financial services sector. The home of former Royal Bank of Scotland (nyse: RBS – news - people ) boss Fred Goodwin was attacked on Wednesday, while in the U.S. senior managers at American Insurance Group (nyse: AIG – news - people ) have been warned to take extra care. (See “Calling All Banker Bodyguards.”)SNE – news - people ) French operations was held hostage over night by angry employees, protesting the terms of their severance package. (See “Want A Better Payoff? Kidnap Your Boss.”) In February workers at a factory of tire maker Michelin (other-otc: MGDDF – news - people ) held two managers hostage overnight.

Last week, millions demonstrated across France against the government’s handling of the economy, and demanding salary caps at companies that are laying-off people. Less than two weeks ago, the head of Sony’s (nyse:

“In France there is an established culture of public and political protest that Britain the U.S. don’t really have,” said David Lea of Control Risk Group. “The preservation of jobs is considered a major goal, so companies, particularly those that are engaging in pre-emptive layoffs, are facing problems.”

So far, none of the situations seem to have taken a violent turn. Pictures taken through windows of the building show a disgruntled looking Rousselet eating dinner, with a bottle of sparkling water. “He is in good spirits and in good shape,” 3M (nyse: MMM – news - people ) had said in a statement on Thursday. “3M is now prepared to restart the negotiation process with the union with the assistance of a mediator and local government officials.”

The workers locked Rousselet, a supply chain director, in his office after discussions over how to handle the 110 layoffs at the 225 person factory. 3M, which produces everything from post-it notes to dog collars has announced job cuts across its operations globally.

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The author, Linda Daichendt, is Founder, CEO and Managing Consultant at Strategic Growth Concepts, a consulting firm specializing in start-up, small and mid-sized businesses. She is a recognized small business expert with 20+ years experience in providing Marketing, Operations, HR, and Strategic planning services to start-up, small and mid-sized businesses. Linda can be contacted at linda@strategicgrowthconcepts.com and the company website can be viewed at www.strategicgrowthconcepts.com.

Is Forced Time Off Fair (or Worth it)?

 As more and more employers are looking for ways to save money in today’s economy, many are reaching a decision to implement an “unpaid time-off” program.  There are pros and cons to this decision – from both the employer and employee perspective.  If your company is considering such a program, the article below will be worth your time and consideration.

Is Forced Time Off Fair?

Monday March 16, 2009 , Tom Davenport, Harvard Business Publishing

On the issue of fairness, if such a policy had been instituted in 1969, it might have been very fair. But in 2009 there is much less of a relationship between hours on the clock and work actually done, at least for knowledge workers. How many of you reading this post actually work only 40 hours a week? How many of you only work on official workdays? Today, most people have a continuous mixture of work and non-work activities, and it will be difficult for any knowledge worker to stop working for a day every week or fortnight. I might suggest that this is exactly what the employer wants, but that would be a cynical remark.

There is also the issue of whether the forced haircut is wise. I have problems with its wisdom in two respects. One involves the fundamental principle that all employees are equally valuable. It’s nice to pretend that they are, but we all know they’re not. Giving all employees a haircut may lead the most valuable ones to look elsewhere. There was a column in a recent Boston Globe about treating all employees (at Boston’s Beth Israel hospital) alike with regard to cuts. It’s heartwarming, but if it leads to an across-the-board haircut, might some of the best employees leave for wealthier hospitals across town?

The other potential problem is that employees, given an involuntary time chop, may look elsewhere to fill the void. They’ll freelance, e-lance, or moonlight to replace the lost income. This could lead to a variety of negative scenarios for the employer/barber who originally chopped their time. The employee might find the freelance employer more desirable, and jump ship altogether for full-time employment there. Or he might end up doing a bit of his freelance work while ostensibly on the clock for the 80% or 90% employer.

I’m not saying that 10 or 20% haircuts for everyone are necessarily a bad idea. I do think, however, that they are hardly a no-brainer either. The inclination to share the pain is admirable, but it could open the door to a host of problems.

Has Your Firm Implemented the Required COBRA Changes?

There has been a great deal of debate recently about whether or not the recently passed ‘American Recovery and Reinvestment Act’ would provide benefit to small business, and I am certainly a participant in that debate. However, one provision of this legislation was recently brought to my attention and it is a provision that will provide tremendous benefit to those workers who were recently laid off and are attempting to keep their medical coverage thru COBRA.

As you are likely aware, the cost of COBRA coverage is significant. In most cases, ex-staffers trying to cover just themselves and not a family are likely paying in the range of $400-500 per month; family coverage likely puts them in the $1000 per month range. Not easy to manage when you’re out of work and trying to live on unemployment. 

Therefore, the recently passed Recovery legislation contains a provision that enables laid off employees who meet the criteria to pay just 35% of their premiums for a specified period and still maintain their coverage, with the former employer or their benefits administrator covering the remaining 65%.  While this may sound like a problem for small business, the Recovery Act also contains a provision that the business will essentially be “paid back” for the expense by taking a deduction of the equivalent dollar amount in its payroll taxes. 

The information on this provision is lengthy; therefore, I have posted  articles providing the details on our website at http://www.strategicgrowthconcepts.com/humanresources/HR-Resources-for-Employers_I58.html.