You can’t foresee every time you’ll have to let an employee go, but planned staff reductions don’t always come as a surprise. The more you can plan for reductions, the more money you can potentially save, especially in unemployment benefits.
“Planning correctly for staff reductions could reduce claims,” says Doug Adams, director of UI solutions for 501(c) Services.
Adams walks you through actions you should and shouldn’t take when planning staff reductions.
The downside of downsizing
Employers downsize to save money. But downsizing costs money, too, especially when it comes to unemployment benefits.
In the U.S., the majority of states gives a person who loses their job because of no fault of their own up to 26 weeks of unemployment benefits, according to the Center on Budget and Policy Priorities. Montana provides up to 28 weeks of unemployment insurance; while Missouri provides up to 13 weeks only.
The amount of individual unemployment insurance claims depends on how much the employee earned, how long they were employed, and your state’s maximum benefit. The average weekly benefit in the U.S. is $366.53, and the average length of collection is 15 weeks, Adams says.
If you’re a nonprofit reimbursing employer who opts out of your state’s unemployment insurance program, you’ll have to pay the full cost of the claim, which adds up quickly if you’re laying off several employees.
What’s more, even if you pay the state tax and don’t have to reach into your pocket for a particular layoff, any unemployment claim can result in an increased tax rate in the future. You should take into account future tax bills when you’re figuring out how much money a layoff will save.
The costs of downsizing
When you’re calculating how much money downsizing will save you, consider these factors.
- The amount of unemployment claims and possibility of future unemployment insurance rate hikes. If you’re planning on laying off three people, you might have to let go of a fourth to cover present and future costs.
- Accrued sick leave, vacation, and severance pay you’ll have to shell out upon employee separation from your nonprofit.
- The impact reductions will have on remaining staff workload, stress and morale.
Ways to avoid layoffs
When economic and financial realities squeeze your budgets, layoffs may seem the only alternative. However, less traumatic actions are available.
When times get tough, management should get transparent. Some companies have asked employees for suggestions on ways to cut costs to eliminate layoffs.
Lowering non-operational costs could help avoid layoffs. Consider:
- Reducing benefits or asking employees to shoulder more of the burden.
- Offering unpaid vacation time.
- Deferring raises or incentive bonuses
- Negotiating pay decreases. Less pay may be preferable to no pay.
Don’t replace people who leave, which saves you unemployment benefit expenses.
Voluntary termination via buy-out gives employees a choice, which tends to minimize the trauma of downsizing.
Your organization may have workers who are approaching retirement. Speeding up retirement with incentives can reduce staff costs in a staggered way that is less disruptive to operations.
Offering part-time work for a set amount of time can reduce costs while holding onto prized employees. When financial conditions improve, you don’t have the onboarding costs that come with hiring new workers.
About the Author
Lisa Kaplan Gordon is a veteran content producer, e-book creator, and social media writer with two Pulitzer Prize nominations and three National Headliners Awards. Her writing has appeared in Washingtonian Magazine, Redbook, Yahoo!, AOL Real Estate, AOL Daily Finance, USA Today, and US Weekly, as well as major metro dailies. She writes several times a month for 501c.com.