The True Cost of Layoffs

and how to minimize them

Layoffs are bad. There is no way around that.

But how you handle layoffs doesn't have to be bad, but often is. Poorly handled layoffs can have long term ripple effects on the overall success of your company.

Here are some of the ways these impacts show up, and some strategies to minimize the damage.

Morale

Layoffs do not only impact those getting pink slips. All your remaining employees are affected to. They are loosing work friends and colleagues. They are asked to pick up the slack and help manage the chaos that inevitably ensues, and usually for no extra compensation. On top of all this, they are left wondering, am I next? They might even begin searching for another job, just in case, taking time and energy away from work. It's no surprise that there can be a huge dip in moral during these times, and subsequently, a dip in productivity and quality of work. One study calculate a 12% dip in productivity following a layoff.

Minimizing the blow

The single best thing you can do for morale is be transparent throughout the layoff process. Give as much notice as you possibly can, and be clear on what is being impacted, why, and the chances that further layoffs might be ahead. The more clear you are with communications, the fewer rumors will spread, and the more people can prepare themselves for what might be coming.

The next best thing you can do is provide evidence to the remaining employees that you are invested in keeping them. Offer skills training or coaching, along with a clear career ladder so they know what's possible if they stick with the company.

Also consider providing some kind of recognition to the retained employees for their hard work during the transition. Understandably, money is likely tight, so catered lunches or group outings may be out of the question. It's your chance to get creative, maybe give them a surprise day off, or feature a different "hero" each day on your company slack channel.

Lost Knowledge

Institutional knowledge and subject matter expertise in your specific product/service is something that is learned over time, and hard to transfer or train.

Consider that you are reducing more than expenses when you let people go. You are loosing a wealth of knowledge and experience that can set back growth and innovation for years.

Minimizing the loss

Take lots of time to consider who will stay and who will go. Teams are better at making this decision than a single person, who may be prone to bias. Consider looking at blinded performance reviews to reduce the introduction of bias. You can also provide a longer notice period to provide for time to pass on or document the knowledge the affected employee has.

Future Hiring

Future candidates will do their due diligence in researching your company before applying. Frequent layoffs will signal instability in the company and may turn them off from wanting to apply, even if the current financial status of the company seems ok.

They will also search out former employees on LinkedIn. What they uncover in these LinkedIn connections, on Glassdoor and other review sites will depend largely on how you handled the layoff process. One of the most common complaints is dehumanizing the experience by not allowing employees toreturn to their desks or say goodbye to colleagues and collect their things.

A recent survey of LinkedIn jobseekers showed that 94% said can learn about a company's culture based on how it conducted recent layoffs.

Minimizing the struggle to find talent

It's important to do everything you can for those who are let go to make the experience less bad. Understand that it is an emotional time, so putting things in writing for people to refer back to after the initial stress has worn off is helpful. Make sure your HR team is ready to take questions and provide support as needed. You should include resources to help them through this, such as outplacement or career coaching, instructions for applying for unemployment and cobra, and support groups they can join.

Reputation

Customers and Investors are watching too. If layoffs are frequent, seem reactive rather than proactive, or seem poorly handled in the press or in comments by former employees, it can jeopardize your chances of raising money in the future, or working with certain companies who may have otherwise considered your services

Minimizing the damage

Similar to your internal communications, providing clear and concise reasons for the layoffs and how the company plans to move forward is critical in assuaging investor and customer fears. In addition, highlighting the severance packages and support you are providing your affected employees can show that you are going the extra mile for those who are loyal. Consider reaching out to existing customers in particular to assure them that their contracts will be honored or to discuss any changes in timeline for delivery that may result.

Taxes and other Costs

This is minor, but your unemployment insurance taxes may go up after a significant layoff. To determine how much, you can use the EMTC (Employer Marginal Tax Cost) calculation from the US Bureau of Labor Statistics .

Be sure you have done the math on the cost of the severances vs. the reduced productivity, loss of knowledge and innovation, future struggle to hire talent, find investors and clients. You may find that holding on to employees, but refocusing them on more strategic efforts or offering early retirement and the option to move to part time work might actually cost you less in the long term.

Minimizing the cost

Smaller layoffs are less likely to impact the bracket you are in for your state. If you can, repurpose workers to different projects or offer employees early retirement, or the chance to cut back hours or go part time rather than cutting them all together.

Run several projection scenarios for different cases to be sure that you are laying off only what is strictly necessary.

If you would like advice on how to handle a layoff, or are looking for outplacement options for your affected employees, please reach out to [email protected]