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  • In the aftermath of the COVID-19 pandemic’s economic repercussions, the landscape for employees drastically shifted. Temporary layoffs became a reality for thousands, prompting questions about accrued vacation pay and immediate compensation. A recent legal case in California brought this issue to the forefront, establishing critical insights into the obligations of employers during such chaotic times. Hotel employees were entitled to payment for accrued vacation following getting laid off without a specific return date.

    The Timeline: Layoffs And Legal Battles

    In March 2020, over 7,000 employees were laid off due to the pandemic’s ripple effect on business. However, it wasn’t until June 2020 that a termination notice was issued, marking an essential distinction in the eyes of the law. The employees argued that they were entitled to immediate payment for their accrued vacation time, which sparked a legal battle with their employer.

    The Dispute: Timing Of Accrued Vacation Pay

    At the heart of the dispute lies the question of when accrued vacation pay should be disbursed. The employees argued for immediate compensation upon the March 2020 layoff, citing California Labor Code’s prompt payment provisions. However, the employer held that such payment was only due upon the formal termination in June 2020.

    Legal Intervention

    The 9th U.S. Circuit Court of Appeals stepped in, underscoring the significance of prompt payment provisions within the California Labor Code. Reversing the initial judgment, the court directed the trial to consider the employer’s willingness to neglect immediate payment obligations. It drew upon Opinion Letter 1996.05.30 from the California Division of Labor Standards Enforcement (DLSE), affirming that a temporary layoff without a specified return date constitutes a discharge, triggering immediate payment of accrued wages.

    Additional Benefits

    Beyond accrued vacation pay, the case dove into the treatment of additional benefits received by the employees, specifically the value of complimentary hotel rooms. While the Fair Labor Standards Act (FLSA) excluded these benefits from regular pay calculations, the employees argued this exclusion. The court, however, upheld the exclusion, citing Department of Labor regulations that categorized such benefits as similar to other excludable payments under 29 C.F.R. Section 778.224.

    Implications And Clarity For Employers And Employees

    This legal battle sets a significant precedent, emphasizing the importance of prompt payment provisions during temporary layoffs. It solidifies that such scenarios constitute a discharge, necessitating immediate compensation for accrued vacation time, regardless of a formal termination date.

    In addition, the distinction drawn between regular pay calculations and additional benefits provides a clear guideline for similar cases. It ensures clarity regarding compensable income under state labor laws, obligating employers to meet immediate payment requirements for accrued wages during temporary layoffs. This minimizes financial uncertainties for affected employees and sets a precedent for fair treatment during temporary employment disruptions.

    Embracing Clarity In Uncertain Times

    In a rapidly evolving work landscape, understanding labor laws becomes paramount. This legal precedent empowers employees to assert their rights to prompt compensation and establish guidelines for fair treatment during uncertain employment periods. It serves as a crucial reminder for employers and employees to grasp evolving labor laws, ensuring protection and clarity amidst economic disruptions.

    Empowering Small Businesses Through Expert Guidance

    Managing layoffs and deciphering complex labor laws can be overwhelming for small business owners, especially during uncertain times. Small business owners wearing multiple hats, meet GMS, a professional employer organization (PEO). GMS’ experts tackle HR management, offering invaluable expertise in navigating layoffs, ensuring compliance with intricate labor laws, and implementing best practices.

    When you partner with a PEO like GMS, small business owners can access professional guidance, streamlined processes, and tailored strategies, allowing them to navigate layoffs with clarity and confidence. In times of mayhem, GMS empowers businesses to make informed decisions and uphold employee rights while managing the intricacies of workforce transitions. Contact us today to learn more.

  • The country’s boom and bust cycle has led to hundreds of thousands of layoffs across the country in recent months. Technology and media-related organizations have taken the majority of headlines in this regard, including household names and employers such as Amazon, Microsoft, and Google. A layoff is the temporary or permanent termination of employment by an employer for reasons unrelated to the employee’s performance.

    Coming off the end of the year, many companies are currently reviewing annual budgets and attempting to adjust overhead costs to increase (or create) profitability. If this sounds familiar to your situation, it’s crucial that you proceed with caution. Avoid stumbling over legal issues that could cost your business more money than the money you’re trying to save by laying off your employees. Continue reading to understand the most common mistakes business owners make when they lay off employees.

    Failure To Follow Legal Requirements

    Business owners must follow legal requirements when laying off employees. One of the most common mistakes business owners make is being unaware of the Worker Adjustment and Retraining Notification (WARN) Act. The WARN Act helps ensure advance notice in cases of qualified plant closings and mass layoffs. The U.S. Department of Labor has compliance assistance materials to assist workers and employers in understanding their rights and responsibilities under the provisions of WARN.

    The following are frequently asked questions when it comes to complying with the WARN Act:

    Am I covered by the WARN Act?

    This act requires employers with 100 or more full-time employees to provide at least 60 calendar days advance written notice of a worksite closing affecting 50 or more employees or a mass layoff affecting at least 50 employees and one-third of the worksite’s total workforce.

    If I’m considered a temporary layoff or furlough, do I need to provide workers with a notice under the WARN Act?

    A WARN Act notice must be given when there is an employment loss, as defined under the Act. A temporary layoff or furlough that lasts longer than six months is considered an employment loss.

    Will the Department of Labor provide me with a letter stating that I have complied with the WARN Act?

    Additional questions and answers can be found here. Failure to follow legal requirements can result in legal action against the business and could potentially damage your business’ reputation.

    Not Having A Clear Plan

    If you’ve come to the unfortunate realization that you are considering or have considered laying off employees, it’s critical that you have a plan in place. Be sure to document the process in which you choose and the steps you will take to ensure it’s the same for every layoff. Consider adding the following to your plan:

    • Intended post-layoff organizational structure
    • Business objectives
    • Identify job positions that are unnecessary or redundant 

    This ultimately helps you create a documentary record and avoid the legal risks caused by discrimination claims. Laying off employees is a significant decision that requires careful consideration and planning. Business owners need to have a clear plan that outlines the reasons for the layoffs, the process for selecting employees to be laid off, and the support that will be provided to the remaining employees.

    Hiring Replacements To Fill “Eliminated” Positions

    While you may already know this, it’s important to remind yourself that you should not eliminate a position and then fill it shortly after. The consequence could be a lawsuit on your hands and, most likely, hefty costs headed your way. The lawyer could argue that when you “eliminated” the position, it was a pretext for discrimination as you went and hired another individual for that same position shortly after. If you lay off an individual because you’re eliminating their position, then do just that. After six months, you can reevaluate the need.

    Not Communicating Effectively

    A common mistake business owners make when laying off employees is not communicating effectively. This should come as no surprise. When employers don’t communicate effectively, it leads to confusion for the employees you lay off. If it comes down to the fact that you’re making more money, why are you laying off your employees?

    To avoid this mistake, be clear about why you are laying off your employees. If you feel that appeasing your shareholders is more important than keeping individuals employed, explain that to these employees. It’s important to be honest and transparent about the reasons for the layoffs and their impact on the business and its employees. Failure to communicate effectively can lead to confusion, resentment, and distrust among employees.

    No Support For Those Who Are Affected

    Amidst a massive layoff season for large companies, we see many of these businesses lacking support for their laid-off employees. HR departments and management teams have decided to scale back what they spend on support, such as career coaching, for those affected by the layoff.

    Layoffs create a stressful and uncertain environment for employees. As a business owner, you should provide support and resources to help them through this challenging time. Consider providing them with access to the following:

    • Counseling services
    • Financial advice
    • Career coaching
    • Employee assistance programs (EAP)

    On the other hand, keep your support relevant. Remember in early 2022 when Peloton laid off about 20% of its workforce but gave them a free annual Peloton membership on their way out? Employees, and customers alike, were appalled by the company’s misstep. Support is good, but proper support is better.

    Not Considering Alternatives

    Business owners should always consider alternatives to layoffs before making a final decision. Currently, many businesses are tightening their belts and searching for methods to reduce costs without resorting to employee layoffs. While layoffs provide immediate savings to the organization, they ultimately come with long-run costs that businesses can suffer for years.

    So, if you’re leaving layoffs as a last resort, there are a variety of alternatives you can take to put your company in a position to navigate any obstacle thrown your way. Consider the following alternatives:

    • Furloughs
    • Offer employees a voluntary short-term sabbatical
    • Consider pay cuts
    • Establish a hiring freeze
    • Offer early retirement 
    • Cut work hours
    • Reduce insurance premiums

    Not considering these alternatives can have a negative impact on the morale and motivation of the remaining employees.

    How A PEO Can Help During These Challenging Times

    Laying off employees is never an easy decision for any business owner. It can be a difficult and emotional process; however, it’s sometimes necessary for the survival and success of your business. If it comes down to laying off employees, avoid these common mistakes mentioned above. Fortunately, when you partner with a professional employer organization (PEO) such as Group Management Services (GMS), we help you avoid these common mistakes. GMS experts provide you with the guidance and support you need. We ensure you follow legal requirements, communicate effectively, explore alternatives to layoffs, and support remaining employees. Contact us today to learn how we can help you during these challenging times.

     

    Frequently Asked Questions

    What’s the difference between a layoff and a furlough? 

    A layoff is the elimination of a position. A furlough is a temporary unpaid leave of absence or reduction in hours typically resulting from a lack of work or budget cuts. 

    When can I lay off employees? 

    If you’re expecting or seeing a significant decrease in business sales, you can institute layoffs. This looks different for every organization but may include one or more of the below situations: 

    End of a contract or a season

    End of casual/part-time work

    End of the school year

    Temporary shutdown of operations

    Permanent shutdown of operations

    Position eliminated/redundant

    Company restructuring

    Employee bankruptcy or receivership

    What will employees be paid on? 

    Employees terminated without cause and on layoff will likely receive employment insurance (EI). For most individuals, the basic rate for calculating EI benefits is 55% of the average insurable weekly earnings, up to a maximum amount. 

    Can my employee work while on EI? 

    Yes, you can recall employees for short periods of work, but it must be under a week. 

    How long is a layoff for? 

    The maximum time for a temporary layoff has been extended from 60 to 120 days to ensure temporarily laid-off employees stay attached to a job longer. This change was retroactive for any temporary layoffs related to COVID-19.

    How do I recall employees back to work?

    Employers must provide a written notice to the laid-off employee, and it must include the following:

    Be in writing

    Be served on the employee

    State that the employee must return to work within seven days of the date the recall notice is served on the employee

    How are positions identified for layoff? 

    Before implementing a layoff, agencies conduct workforce planning processes. The Department Director or Administrator must determine which areas will be affected based on the following criteria:

    Geographical location

    Class series

    Class and applicable option

    Full or part-time positions

    What information is included in a layoff notice? 

    A layoff notice must include transfer or displacement options for:

    Statewide transfer within your department

    Voluntary demotion to another position within the department and geographical location

    Move back to the most recent former class

    How much notice of layoff should my employees get?

    Permanent employees must be given a minimum of 30 days written notice.

  • Business owners in today’s economy stress over the uncertainty of what’s to come. Let’s face it, COVID-19 took a toll on just about everyone but especially small business owners. Interest rates are rising, inflation is through the roof, and talk of a recession is all at the forefront of our minds. However, small business owners continue to hire additional employees. Over the last three months, over one million jobs were added within the U.S. Alongside this, you see companies such as Zoom, Dell, PayPal, and Hubspot lay off a significant amount of their workforce. As a business owner, you may think do I add more employees, or do I need to cut back?

    What The Experts Are Saying

    Mass layoffs have been a reality for many workers worldwide, especially since the COVID-19 pandemic. The pandemic forced many businesses to shut down or scale back operations, resulting in significant job losses in all industries. While the economy is slowly working on getting back to life before the pandemic, businesses still struggle to survive, forcing business owners to lay off workers and cut costs. The major companies making layoff announcements are those within the technology, accounting, and engineering industries. More than 77,000 workers in U.S.-based technology companies have been laid off in mass job cuts in 2023.

    However, the job market remains stronger than expected despite the ongoing recession fears and constant news regarding mass layoffs. The health care industry is growing rapidly, with more than two million job openings. In addition, the following industries are increasing their hiring efforts:

    • Restaurants
    • Hotels
    • Hospitals
    • Sports
    • Civil engineering
    • Dental

    Have You Considered Partnering With A PEO? 

    The job market is complex and ever-changing, as mass layoffs and hiring booms are happening within different industries. As the economy recovers and adapts to new circumstances, consider partnering with a professional employer organization (PEO) like Group Management Services (GMS). Between recruiting and retaining employees to payroll and tracking vacation time, there are many functions we can help with. When you partner with GMS, you gain HR experts that help you attract and retain top talent, create enticing job descriptions that get you the talent you need to grow, create a competitive benefits package, and so much more. Contact us today to learn more.

  • As economic uncertainty looms over the U.S., many employers have been left to make challenging budgeting decisions. There are a variety of reasons an organization may downsize its workforce, including cost-cutting, economic declines, mergers, and more. Regardless of the reason, there are proper steps employers and management teams must take.

    Before considering employee layoffs, an employer must evaluate the risk of properly managing federal and state regulations. Discharging a single employee can expose an employer to legal claims such as class action or collective action lawsuits. Employers may experience ongoing communication with former employees in terms of benefits administration, reference requests, verification of employment, and possibly responding to lawsuits.

    Why Layoff Employees?

    Layoffs often are the result of cutting organizational costs. According to SHRM, cutting compensation and benefits typically represent half of a company’s total operating expenses. As a result, organizations looking to reduce expenses tend and tend to look towards removing employees.

    Layoff Alternatives

    Employers who are considering layoffs must understand the importance of considering every alternative. Finding and implementing workplace alternatives rather than cutting employees can be done with a proper human resource management team. Alternatives to layoffs include:

    • Reducing hours worked
    • Adopting a Voluntary Separation Program (VSP)
    • Identifying and removing wasteful practices

    Selection Criteria 

    It is important to carefully consider why you are laying off that employee. By using the proper criteria, employers may use this as a defense against any legal or discrimination allegations. When conducting a layoff, employers must be transparent about the criteria.

    The following are examples of selection criteria:

    • Seniority-based selection
    • Employee status-based (full-time, part-time, contingent status) selection
    • Performance-based selection
    • Skills-based selection 

    Best Practices

    Once it has been decided that employee layoffs are the best option for your organization, consider the following steps to begin to process.

    Planning

    Careful planning is required to complete layoffs properly. From the beginning, employers should be considering alternatives to communicating the layoff. Planning must also go into post-layoff reactions and considerations.

    Team selection

    When it comes to choosing a team to dive into the criteria set, you want a diverse team. This will maintain employees from experiencing bias and allow them to focus strictly on the task at hand.

    Keep it professional 

    When tasked with implementing a layoff, employers must allow their employees to know why this is happening and the decision process behind it. Developing a clear message and a united front will show that the decision was thoroughly considered.

    Emotional impact

    While this is a challenging time for the employer and employees, there are new challenges to consider. When delivering the news, treat your employee with kindness and compassion. It is important to consider the compounding effect on their family and future. Retained employees may have new responsibilities that may take time to implement.

    Show Your Support

    There are many ways to ease the impact of the layoff on employees. Offering a separation package is one way that businesses can provide employees with financial benefits. Reach out to other local employers and see if they would consider hiring any lost employees.

    Employment Assistance Programs (EAP) can help manage employment separations. Implementing an EAP provides a confidential source that your employees can use to find support and resources for certain challenges they face.

    Re-recruit Your Staff

    During this time, you want to put emphasis on communication with your employees. This is the time to re-recruit your remaining employees. It is not only vital to show support, but also your commitment to the current staff. Reassure your team and let them know that you are invested in them. Place an emphasis on the organization’s mission to ensure your business continues to thrive.

    GMS’ Support

    Employee layoffs can leave a lasting impact that goes beyond the employee and employer. When you experience setbacks within your business, allow GMS to step in. Our team of HR experts can help you find and weigh your options. Ultimately, if you decide employee layoffs are what is best for your business, our team will ensure the layoffs are completed properly. When you partner with GMS, any setback can be turned into a comeback. Contact GMS today to learn more.

  • Whether your business is facing a difficult financial situation or hit a slow season, it may seem like layoffs are your only option. However, there is another way that you can reduce payroll costs without completely cutting jobs: furloughs. 

    Furloughs are a cost-saving measure that can provide employers with financial flexibility without completely severing ties with employees. Of course, you’ll need to ask yourself a few questions to figure out if furloughs make sense for your business. 

    An empty workplace after a business furloughed its employees. 

    What is a Furlough and How is it Different Than Laying Someone Off?

    In short, a furlough is time off without pay. Unlike an employee who is laid off, people who are furloughed are still technically employed by your company. Instead of completely severing ties with employees, furloughs allow you to temporarily part with workers and send them home without pay. Once the furlough is over, the affected employees can return to work and resume their normal duties.

    During this time, furloughed employees cannot do any work on behalf of their employer – even a short phone call or a half-hour of work is considered a violation of the no-work rule. As such, even small tasks can result in you having to pay furloughed employees for their time (or the whole day for exempt workers).

    How Long Do Furloughs Last?

    The length of the furlough can be as short or long as you need. That means that furloughs could range anywhere from a week to several months. Indefinite furloughs are also an option if you’re unsure of how long you’ll need to maintain a lower payroll. If you plan to furlough employees, you’ll want to find a balance between the needs of your business and an amount of time that won’t drive your valued employees to find employment elsewhere.

    How Do Furloughs Affect Hourly vs. Salaried Employees?

    Employers have the right to impose furloughs on both exempt and nonexempt employees, although there are some key differences in terms of cost savings. With hourly employees, you can calculate the total number of hours saved with a furlough and evaluate savings. You can also furlough salaried employees, as these workers are only entitled to pay during weeks in which they work. As such, a long-term furlough won’t change their exemption status. 

    How Do Furloughs Impact Employee Benefits?

    While your employees won’t be paid during a furlough, they are still technically employed by your company. As such, there is some expectation that these employers are entitled to group health coverage, retirement plans, and other such benefits offered by your business. 

    Despite this expectation, you still may have the option to discontinue or reduce the benefits of furloughed employees. However, you’ll want to communicate this with your employees ahead of this decision. Of course, you’ll also need to check your state’s employment laws to see if there are any stipulations about the treatment of employee benefits during furloughs. The Society for Human Resource Management (SHRM) suggests considering the following points:

    • Your group health plan may dictate if coverage continues or ends during a furlough. Certain plans extend active coverage during short-term leaves of absence, while others set minimum hour requirements.
    • You typically must offer affordable COBRA continuation coverage for all group health plans if coverage ends because of termination or a reduction in hours. Also, an increase in the employee’s share of the premium because of the furlough is a loss of coverage for this purpose.
    • Terminating group health plan coverage for furloughed employees may lead to ACA penalties.
    • Covered employees must still pay monthly premiums/contributions to maintain coverage during a furlough. Make arrangements with employees in advance of the furlough to avoid lapses in coverage or invalidated plans. Payment arrangements for allowable coverage should be made in advance with employees and can include payments via mail, ACH, or a COBRA vendor.
    • Evaluate 401(k) and other retirement plan implications. For example, a furlough may trigger a “partial termination” clause, which may lead to 100 percent vesting for affected participants.

    Can Furloughed Employees Get Unemployment?

    While furloughed employees are still technically employed by your company, they will still typically qualify for unemployment benefits. In fact, the CARES Act expanded unemployment benefits for furloughed employees. According to CNBC, these employees are now “eligible to receive their state-administered benefit, based on previous earnings, for up to 39 weeks.”

    Can Furloughed Employees Work Elsewhere?

    Yes, furloughed employees can find alternative employment. In addition, certain states allow furloughed workers to pick up part-time jobs and stay eligible for partial unemployment.

    Determine the Right Path for Your Business

    Furloughs or layoffs are never an easy decision, but it’s important to decide the right route for your business. Need an HR partner to help you plan ahead and stay compliant with local, state, and federal regulations? Contact GMS today to talk to one of our experts about the future of your business.

  • In a perfect world, small business owners wouldn’t have to worry about growing compensation budgets. Unfortunately, difficult or uncertain circumstances such as economic downturns, pandemics, or other major events can put a major financial strain on your company. 

    These situations can call for creative solutions, and compensation costs are a natural place to start shedding expenses. Payroll expenses typically fall between 15 to 30 percent of gross revenue, with exceptions for more or less labor-intensive industries. Of course, making compensation-based changes requires a delicate balance between securing the financial stability of your business without losing valued employees. 

    Whether you want to stabilize business expenses or need to cut costs, it’s important to take the right measures to keep your business strong during difficult times. Let’s break down what you can do to manage compensation costs.

    An employee receiving a paycheck following compensation management adjustments during difficult times. 

    3 Potential Compensation Management Strategies to Cut Costs

    There are a variety of approaches that you can take toward cutting or simply controlling your compensation expenditures. These strategies can be a temporary solution or permanent decision depending on your exact needs.

    • Manage current and future wages and salaries
    • Adjust or eliminate perks and incentives
    • Lay off or furlough employees

    Some routes will offer more cost savings than others, while others may create notable employee relations issues. Ultimately, you’ll need to carefully consider each of the following options and decide which makes the most sense for your business.

    Manage current and future wages and salaries

    According to the Bureau of Labor Statistics, wages and salaries accounted for 70 percent of employee compensation costs for private employers. The ability to cut or control these expenditures can make a major difference for businesses navigating through uncertain times. There are a few different routes your business can take in terms of managing wages and salaries:

    • Hiring freezes
    • Pay freezes
    • Wage adjustments

    Hiring freezes

    A hiring freeze is one of the first steps a business can take to control compensation costs. Simply put, a hiring freeze means that your business will not add any additional personnel. Hiring freezes are temporary in nature, but can last for months depending on the situation at hand. 

    One major advantage of hiring freezes is that it lessens the impact of compensation control on your existing employees. Unlike other solutions, the employees don’t feel the direct impact financially. However, this also means that hiring freezes won’t actively save your company money as much as allowing you to avoid adding on additional compensation costs. If you’re looking to simply control your expenditures while you wait out uncertain times, a hiring freeze can be a smart move.

    Pay freezes

    Like a hiring freeze, a pay freeze allows you to control compensation costs instead of cutting them. However, pay freezes apply to existing salaries and hourly rates as opposed to adding new members to your team. 

    If you give out regular raises or promotions, a pay freeze would put those increases on hiatus, effectively allowing you to maintain your current expenditures for wages and salaries. Of course, this route can be unpopular with employees because it does restrict their ability to make more money in the short term. However, it can be a much more amenable approach than other cost-saving solutions.

    Wage adjustment

    Another route you can go is to reduce compensation cuts by adjusting hours or salaries. For hourly employees, you can have employees work fewer hours in order to keep compensation costs down. There are a few different ways this strategy can work out.

    • Reduce number of days worked per week
    • Reduce the number of hours worked per day
    • Enact alternating work weeks
    • Offer voluntary days for employees who would rather take time off than work

    Each of these options can offer some financial reprieve, although it does mean that your employees will have less time to complete tasks. You’ll also want to review your local laws to make sure you follow any predictive scheduling laws. Some areas require a minimum notice period for changes in hours, days, and times worked, so make sure you give your employees proper notice if you decide to adjust work hours.

    If reducing work hours isn’t enough, you can opt to enact pay reductions for salaried employees. There are a few different routes you can go with this decision.

    • You can reduce pay by a same percentage for every single employee.
    • You can set different percentages for different tiers of employees based on job levels, organizational hierarchy, or some other groupings (make sure you have a legitimate business justification for each group to avoid any discrimination complaints).

    Pay reductions are an effective way to cut costs during difficult times, but it comes with the caveat that nobody likes making less money. As such, pay reductions are typically used only when it’s essential to cut costs. If pay reductions are a necessary step, one way to offset some displeasure is to show that everyone is impacted by the cuts, including leadership. Typically, higher-wage earners – including yourself – will take a percentage to help offset and protect lower-wage earners. While this is certainly not an enjoyable decision, it can show some solidarity between leadership roles and lower-wage workers.

    Pay reductions also come with some legal considerations that may impact your ability to enact these kinds of cost-cutting measures. As with hours adjustments, your local or state laws may require you to provide advance notice on pay cuts, which may require written notice along with signed acknowledgements from each employee. Any pay reduction should not drop hourly workers below the acceptable minimum wage. The Fair Labor Standards Act (FLSA) sets the federal minimum wage at $7.25 per hour, while many states and regions have higher rates necessary for minimum payment requirements. You’ll also need to make sure that your company navigates overtime pay correctly, especially for any employees who become non-exempt due to pay reductions.

    Adjust or eliminate perks and incentives

    While perks and incentives may not make up as much of your compensation costs as base wages and salaries, they can still add a notable amount to your expenses. Eliminating or adjusting these extra items can make quite a difference for financial stability.

    In terms of perks, evaluate what types of extra bonuses your employees may receive as a result of working for your company. Typical examples of minor perks include free lunches, tickets to events, and other monetary awards or gifts that employees can enjoy just by being part of your workforce. While these perks add to the overall experience of your business, they can quickly become non-essential in difficult times. As such, eliminating or adjusting these perks can be an initial step toward stabilizing finances that would be more popular than cutting salaries.

    Another cost-saving option is to end or adjust any bonuses and incentives employees can earn. Either option isn’t likely to be met with enthusiasm, but a reduction in bonus percentages or lengthening merit cycles for performance goals can be a much more agreeable solution for employees than more drastic cost-cutting solutions. If you do decide to adjust or end any of these bonuses or incentives, it’s important to time your announcement appropriately. Waiting until shortly before these payouts will not go over well with employees, so try to make any changes well before a payout period.

    Layoffs and furloughs

    Depending on the situation, you may need to cut more than just costs. Layoffs and furloughs are an unfortunate reality that many businesses must face during difficult times. However, they may be a necessary step if business slows down due to unexpected circumstances.

    Employee layoffs are a much more immediate form of cutting compensation costs. This measure effectively severs your ties with an employee, saving you from paying out wages, health insurance, payroll taxes, and any other costs associated with that worker. Of course, this also means that you may permanently lose this employee for good, even after your business bounces back.

    If you need to make difficult compensation cuts but still want to retain certain employees, a furlough is a more attractive option. Furloughed employees are still technically employed by your company. This relationship means that you send your employees home without pay, but they are still entitled to group health coverage, retirement plans, and any other such benefits offered by your business. Furloughed employees can also apply for unemployment, so they can still have some form of incoming revenue and benefits while they aren’t working for your company – and aren’t as tempted to leave for another business.

    In general, a furlough is designed to be a temporary situation. Some furloughs are designed to last for a set amount of time, while others may be indefinite until you decide it’s time to resume regular operations. Once the furlough is over, the affected employees can return to work and resume their normal duties.

    How to Communicate Compensation Cuts to Employees

    Running a business is already a difficult job – trying times only make it that much harder for both you and your employees. While certain compensation management strategies may not be the most pleasant news to share, it’s critical that you clearly communicate these decisions with your employees and help them understand exactly why they were made.

    Changes in compensations affects employees both professionally and personally. Lost wages, incentives, and jobs has a direct impact on each person’s family and plans for the future. While these decisions are made to stabilize your business, it’s important to recognize that these actions can have long-lasting consequences for everyone involved.

    This delicate balance between protecting the business and respecting your employees is why it’s crucial that you communicate these decisions directly with everyone involved. Make sure to be open, transparent, and empathetic when you deliver the news to everyone. Employees should be able to not only recognize the severity of the situation, but also that you understand how difficult this news is for everyone.

    It’s also important to maintain communication after you announce your initial plans. Frequent, clear updates is one of the best ways to support your employees during trying times. Let them know that you and other people in leadership positions are ready to listen to their concerns and ideas. By sharing regular updates and open communication, you can provide a necessary sense of security and stability while everyone works through these difficult times.

    Prepare Your Business for the Future

    Some events are impossible to predict, but there are always measures you can take to help protect your employees from difficult times. Fortunately, you don’t have to go through this process alone. 

    Group Management Services partners with small business owners to take on the administrative burden of HR management and make their businesses simpler, safer, and stronger. Contact GMS today to talk to one of our experts about how we can help you manage payroll, benefits, and other key HR functions.