Time to Downsize? Is a Voluntary Layoff Right for You?

Voluntary Layoffs
11
min read
January 24, 2023

Voluntary layoffs might be a great solution if you need to tighten your company's finances. It's a strategy used in companies both big and small. 

For example, after the pandemic sucker punched the airline industry, Boeing offered a couple of rounds of severance packages. American Airlines and several other major air travel companies followed suit. And more recently, Amazon sent out voluntary severance offers to many employees, trying to reign in company costs. 

No matter the size of your company, voluntary layoffs are a viable option when it comes to downsizing. But that's not to say there aren't any downsides to going this route. Let's look more closely into the matter to help you decide if this is the right step for your business. 

What's a Voluntary Layoff?

A voluntary layoff is when management offers a resignation package with pay and benefits to employees to encourage them to leave on their own. Those who accept the terms get the benefits defined in the package and end their time with the company. 

Those who don't accept the package continue working with the company, although buyouts, restructuring, and other organizational changes might mean there's a new set of rules for them to play by.  

Besides being a way to tighten finances, companies might go with this type of termination to encourage workers who've been thinking about retiring or moving on to take the plunge. This type of layoff allows the company to support those workers through the transition. It also helps your remaining staff feel more secure in their positions. 

What's the Difference Between a Voluntary Separation and an Involuntary One?

Any rounds of cuts mean people lose their jobs, but the main difference between a voluntary and an involuntary layoff is whether the employee has any choice in staying or going. 

In an involuntary separation, it's the management team that decides who gets laid off and calls those people to the office. These types of discharges are the more common of the two. They're the ones with the dreaded "pink slip" people used to talk about. 

But voluntary terminations are when management announces the plan to downsize, lets the team know who is eligible, and the employees themselves volunteer to leave. Another important distinction? Those leaving voluntarily are typically not eligible for unemployment benefits. Still, this method is growing in popularity and is often seen as a more compassionate option when companies offer attractive severance packages.

Is a Layoff the Same as Being Fired?

Getting laid off is not the same thing as being fired. When you fire an employee, you often have a reason why in mind; they must have done something to make you show them the door. 

With a layoff, the company is trying to reduce its staffing. It's not because of the actions of a specific employee but rather the business as a whole. 

Benefits of Voluntary Separations 

While it's never easy to let people go, this type of separation provides some benefits to both you and your employees. 

Drawbacks of Voluntary Layoffs

While this workforce reduction offers some benefits, there are still downsides. 

But despite the drawbacks, if you manage the transition carefully, you can make sure you're still left with a balanced workforce. To help keep things running smoothly, spend as much time planning as possible and think through the restructuring. That way, you're ready to move forward immediately after the layoff event. You'll also want to work closely with your HR department and legal counsel to ensure you're doing things fairly. 

Do Voluntary Layoffs Actually Work? 

Reducing your payroll costs can effectively save money and keep your company in the black financially. But as a business owner, you're probably wondering if doing so on a voluntary basis works. 

The answer is yes, sometimes too well. Stronger employees tend to be more confident in their ability to find a job, and more of them may take the voluntary layoff than you'd like. Then, you'll be left with lower performing team members.

If, however, your employees share similar skills and strengths, then you can cut down on labor costs pretty quickly and still preserve your team's ability to function. But you have to make sure your severance package is enticing. For it to work, it needs to provide enough incentives to team members so they're willing to accept the offer.

If you do it right, you can save money without having to go through the negative effects of picking who stays and who leaves.

What's an Attractive Voluntary Layoff Package?

When it comes to these events, your termination package can make or break your offer. That's why these voluntary separations are often called "buyouts."

You know your team best, so you likely know what would motivate them to say yes. Your package might include a combination of the following elements: 

The Small Business Guide for Handling Voluntary Layoffs

There's no process set in stone for voluntary layoffs, but here's a guideline you can follow to make sure your business doesn't make any faux pas.

Step 1: Talk to the Human Resources Department

The HR department is going to be your lighthouse during this process. They'll make sure your company complies with all laws and coach you on the best path to communicating the separation package to employees. 

A good HR team also makes sure everything is handled professionally. The last thing you want is to make sailing through your layoff process rougher than it has to be.

No HR department? No problem. Instead, you can reach out to an employment lawyer who specializes in labor law. They'll be able to help you navigate the legalities of this process.

Step 2: Create Attractive Severance Benefits 

We discussed these above, but just a reminder—you'll want to offer a lump sum or payout over several months (usually about five to six months' worth of salary) and healthcare benefits.

Also, think about what other perks or benefits would make employees consider accepting the package and how much you can afford to provide.

Step 3: Develop a Clear Communication Plan

Once you have all the details, it's time to talk to your staff. They deserve a clear, concise explanation of the situation and what it means for them.

You'll want to discuss the following (probably in a company meeting):

If your benefits vary based on employee type or length of time with the company, explain that they can come by your office (or HR) to discuss individual offers. 

After saying all that you want to say, leave space for any questions your team may have. 

Step 4: Be Prepared for Emotional Responses

This is a difficult time for everyone involved. Even if it's voluntary, an employee may be leaving a job they are passionate about and part of their life for many years. So, showing empathy and compassion is a must throughout this process.

How? Speak positively about exiting team members and offer to write a letter of recommendation or endorse them on LinkedIn. Have an open door throughout this process, so people who are considering separation can talk with you about it. You may also consider bringing on a counselor to meet with anyone who wants this service.

Before Going with Voluntary Layoffs, Consider These Questions

When deciding whether or not to go this route, there are some key considerations you should take into account. So, before you make a decision, ask yourself:

Why do you think this is a good option? 

If you have specific employees in mind that you're hoping will choose to leave, it might be better to have a traditional layoff so you have more control over the exiting team members. Otherwise, you may feel resentment if those you want to go choose to stay. 

How will you feel if you lose your top talent? 

The employees you're hoping will leave aren't always the ones who take you up on this offer. Can you be supportive of any eligible team member who chooses to leave? 

Are you able to offer an enticing separation package? 

Companies typically offer four to five months' worth of salary to those leaving, as well as healthcare benefits. That doesn't necessarily mean you have to do that, but if your package won't sustain team members long enough for them to look for a new job—and choose the right fit—you might have a hard time convincing them to go.

What state laws dictate layoffs? 

Do you need to give employees advance notice of the termination, or can you just offer them the package without much prior warning? 

Since layoff laws vary from state to state, do your research beforehand. For example, in California, you have to abide by the WARN act that requires 60 days' notice before a mass layoff event. 

What's your timeline? 

The process will go more smoothly if you figure out these details upfront. 

Who's eligible?

To treat people fairly and uphold equal employment laws, make sure you aren't using race, religion, gender, or any other protected class to select who's offered a package or not.

What restructuring needs to be done afterward? 

After some employees leave, you'll need to make sure your company can still do everything that needs to be done. 

What other options do you have?

Laying people off isn't always the right solution. So be sure to consider other alternatives, such as a temporary dismissal, reducing hours, furloughs, or implementing a hiring freeze.

A furlough is a temporary, unpaid leave of absence for employees. However, it's expected that, eventually, this worker will be back on the payroll. During a furlough, employees might continue to receive health insurance or other benefits. If you just need to cut payroll costs for a short time, it might be a good option. 

Shared work may also be available in your state. It's where employees work fewer hours and collect unemployment for the remaining hours to help make up the difference. It allows you to keep trained personnel on your payroll, so you can quickly grow your team again when your business picks back up. 

Besides staffing decisions, take time to explore other ways to reduce costs, like renegotiating contracts with suppliers and vendors.

What Does a Good Voluntary Layoff Policy Include? 

Before you announce your voluntary separation program, you need to create a policy that outlines how this layoff is going to happen. This gives you a written document to follow and helps ensure you're following employment laws. Once you've drafted this policy, have a lawyer review it. This step can go a long way in protecting your company from a lawsuit. 

Here's a look at the components your policy should have: 

While your employee handbook might have a generic voluntary separation policy, you'll want to update it for each specific event. This way, you have everything lined up to help the process go more smoothly.

What If Not Enough People Decide to Go?

Of course, there's always a chance that not enough people will take the voluntary offer and you'll have to resort to traditional layoffs in the future.

If that happens, it could leave employees who opted not to leave feeling disgruntled, especially if the traditional package isn't as generous as the one that was initially offered.

The best way to avoid this scenario from happening is by doing your research beforehand and predicting how many people will take you up on the offer. You may wind up being off in your calculations, but all you can do is your best. Sometimes, these programs just don't work out like you thought they would. 

Letting Employees Go Is Never Fun

Voluntary layoffs can be difficult for any business, but sometimes it's the right path forward. If you need to let people go, take the necessary steps to ensure the process is carried out professionally, legally, and compassionately. This helps minimize the impact on employee morale and helps the transition go more smoothly.

The most important thing is to make sure all your employees understand their rights and what options are available to them. Then, with clear communication, sympathy, and attractive severance packages, you can ensure your team's morale doesn't decline drastically during this difficult time. 

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