5 Things to Consider Before Accepting A Workforce Reduction Due to COVID-19

Essential Tips For Employers Navigating Workforce Reductions in 2020 

During economic downturns or so-called “Black Swan” events like the current Covid-19 pandemic, companies are quick to lay off employees in an attempt to cut costs and stay afloat. Their logic, rooted firmly in fear, is that if we have a workforce reduction, we might be able to save the company.

 

Of course, a company is more than numbers on a spreadsheet. It’s a living, breathing entity that survives and thrives only because of the people that comprise it.

 

Both the short and long-term strategic and operational impacts of knee-jerk layoffs can be severe. Wise management teams understand this and seek to adopt measured approaches when faced with challenging times. Specifically, they ask themselves several key questions to help set the stage prior to considering layoffs. 

 

  1. Can the CARES Act Help Me Avoid Layoffs? When the true economic impact of COVID-19 became apparent, Washington acted with relative speed to offer support to the nation’s employers. The resulting Coronavirus Aid, Relief, and Economic Security (or CARES) Act was designed to mitigate the economic devastation caused by the shutdown of most “non-essential” businesses in the U.S.  

 

“As cities and states across the nation implement business closures and “shelter in place” mandates for coronavirus, countless small businesses are facing an unthinkable reality: They can’t afford to pay their staff until they’re allowed to reopen their doors.”

– U.S. Chamber of Commerce

 

To help avoid furloughs or layoffs the CARES Act states that businesses impacted by the COVID-19 pandemic can take out loans to cover employee salaries that, under the correct circumstances, can be converted to a grant.

 

According to Forbes, the CARES Act is “…an estimated $2 trillion package, which specifically allots $10 Billion for EIDLs and $350 billion for Paycheck Protection Loads to help small businesses.” 

 

EIDLs are Economic Injury Disaster Loans and make up the core of the government support offered at this time. The Paycheck Protection Program Loan Guarantee is offered to small businesses with less than 500 employees. For frequently asked questions and additional information about the Cares Act, visit The U.S. Committee on Financial Services.

 

Start out by navigating to the SBA website and applying directly to the available loan programs. If you’re awarded a loan, you’re under no obligation to accept it. Applying for as much as possible is a prudent hedge to keep your options open in this time of uncertainty. 

 

These loans are designed to help avoid large-scale layoffs, but they are not a panacea. Depending on the length and severity of a COVID-19-related shutdown, you may have no choice other than to scale back your staff. 

 

However, this doesn’t necessarily mean that you’re faced with a binary decision. In fact, a more nuanced strategy may offer you more flexibility in both the short and long-term.

 

According to the U.S. Chamber of Commerce, “If your business is forced to shut down entirely, it may be inevitable that you need to lay off your entire staff. However, if you are able to continue operating but simply need to scale back, it may be wise to design an “on-off” furlough plan, so your employees are not completely without income for months on end.”

 

  1. How much will layoffs cost the company? The often-overlooked truth is that keeping employees employed can (and often does) end up saving the company money in the long run.

 

Downsizing isn’t cheap, and the price of severance, employee alienation, potential litigation, and damaged morale can easily surpass any potential savings you might recognize. Further, employers face a form of “HR Debt” that is realized when they go to staff up again and incur significant costs recruiting and training new employees. 

 

It’s also important to consider the impact that mass layoffs will have on your tax rates. If you have a significant number of employees taxing the unemployment insurance system. 

 

According to SHRM, “Employers’ tax rates depend on “experience ratings” that take into account the amount of state tax money an employer has contributed to the state unemployment insurance trust funds and the amount of compensation to former employees who received unemployment insurance. All employers pay tax on the base; employers that lay off workers have higher experience ratings. They pay more, sometimes much more.”

 

Put simply; layoffs aren’t the silver bullet for cost-cutting that they may appear to be on the surface. There are a number of additional costs, some long-term, some short-term, that can dramatically change the calculus of your decision.

 

  1. Could your existing employees help to solve current financial troubles? Employers are often surprised at the degree of devotion that their employees can demonstrate in difficult times. Involving them in the decision-making process early on not only increases team cohesion, it eases anxieties, improves productivity, and increases compassion for the company and the difficult situation it faces. 

 When employees trust that the company is being transparent, it eases insecurities and feelings of bitterness that can arise when they feel that the situation is out of their control. 

Leaders who keep the lines of communication open and involve employees in the dialogue often find themselves fielding valuable suggestions from their front-line employees. 

 

Employers can even be as bold to say, “We would rather not cut anyone’s jobs, so we need an all-hands-on-deck approach to generate cost-cutting ideas until this situation blows over.” This allows you to present various ideas, such as: 

 

 

This approach enables leaders to make difficult suggestions more palatable by giving employees a say in the matter. Further, you may be surprised by the creative and unexpected ideas team members can generate in difficult situations. 

 

  1.   Could another company benefit from your company’s skillset? When dealing with a crisis on the historical scale of COVID-19, even the most “out of the box,” ideas must be considered carefully. 

 

One such idea is team-sharing. The Wall Street Journal recently explored this concept suggesting, “Exchange workers with other employers. Larger companies do this within their own umbrella of subsidiaries. Smaller firms can choose partner companies or vendors. Ideally, the host firm would pay employee salaries and get the use of a skill set like marketing that it might not have on staff. The mutual benefits are a cross pollination of skills, retention of employees and temporary wage relief.”

 

  1.   Can you cut wages and/or benefits? Many employees will readily accept reductions in wages and benefits if it means keeping their jobs in difficult times. This short-term pain that accompanies such a reduction is almost always preferable to being laid off, especially for employees who may struggle to find other employment. Further, it serves as a filter of sorts, weeding out employees who are only marginally committed to the business.

 

  1.   Can you offer equity instead of cash? We generally hear about offering equity compensation for start-ups. New businesses are typically strapped for cash, so this option not only pays for the employees’ skill set, but also their investment and interest in making it a successful business. 

 

It might be even more relevant in financial downturns with a company for whom an employee has invested it’s time and already built trust. During a financial downturn, the company will likely be down in price so riding the wave back up once things rebound is a nice added bonus.

 

  1. What are the insurance-related issues I need to consider? As you know, terminating an employee doesn’t entirely absolve you of your duties and responsibilities as an employer. Wise leaders follow the Golden Rule, treating each and every employee how they themselves would like to be treated, with respect, dignity, and transparency. 

 

Even when we are working the most challenging and underperforming individuals, companies must uphold the integrity of their brand and conduct themselves with the utmost professionalism.

 

This philosophy, while beneficial in and of itself, is often mandated by various federal and state laws, programs, plans, and rules that have been enacted to ensure that employees are taken care of when employment is interrupted or terminated. 

 

Once leaders have carefully considered these seven questions, they are in a reasonable position to make difficult decisions if necessary. Most employees are able to leave with their heads held high when they know their leadership team has been transparent, open, and thorough. 

 

Make no mistake: the decision to downsize is no easy task. There are so many considerations that have to factor into the decision. The financial, strategic, and ethical implications are massive and cannot be taken lightly.

 

Few understand the stress and pressure faced by business owners and leaders when going through a business disruption or cash crunch.

 

The decision of whether or not to downsize in the face of our current COVID-19 epidemic is largely without precedent. Employers find themselves in an incredibly difficult position. The environment we find ourselves navigating is so fluid and uncertain that any decision regarding downsizing your team is even more agonizingly difficult than normal. 

 

Fortunately, there are several COVID-19-specific options available to employers that may delay or help prevent layoffs altogether. 

 

Below is a checklist of your options with a detailed guide to follow for each option.

 

Downsizing Options Checklist

☐ CARES Act and How to use it to Prevent Layoffs

☐ Continue to Pay, and Pay-in-Full, your Employee Health Insurance Premiums

☐ Temporary Partial Pay Reductions

☐ Offer Ownership or Equity in the Company in Exchange for Pay

☐ Loan Your Workforce to Another Business