An illustration of a business owner discussing layoffs.
Running a business

How to lay off employees with dignity and compassion: A small business guide

As a small business owner or manager, it's never easy to lay off employees. Unfortunately, economic and unforeseen conditions can make it necessary to make difficult business decisions that impact the livelihoods of your team members. 

The pace of employment growth remains near zero for small businesses, with some sectors seeing declines in employment. For example, employment in the leisure and hospitality, professional and business services, and information industries fell month-over-month in June. 

With this in mind, it's important to know how to lay off employees with dignity and empathy. Not only will this help your employees through a difficult time, it will also help your business maintain morale. There’s no best or ideal way to let people go, but there are respectful and compassionate ways to go about it. 

How to prepare for compassionate layoffs

An illustration of a checklist to complete before starting layoffs.

Compassionate layoffs can minimize the negative impact on employees and treat them with respect and empathy throughout the process. Roughly half of employed Americans have anxiety about layoffs, according to Intoo

Here are some tips for making the process less stressful for everyone:

1. Consider the needs of your business 

While layoffs are never an easy decision, sometimes they're necessary to ensure your company's continued success and profitability. Here are some key factors to consider when evaluating the needs of your business:

  • Economic conditions: If your company is struggling financially and is experiencing a decline in revenue, laying off employees may be a necessary step to cut costs and stay afloat.
  • Performance issues: Terminating employees can help maintain productivity and efficiency if there are performance issues. 
  • Business decisions: Sometimes, layoffs may result from broader business decisions, such as reorganizations, mergers, or acquisitions, that require a reduction of workforce. Layoffs may be necessary to restructure your company and eliminate redundant positions.

You’ll want to carefully evaluate the company's needs before making any decisions regarding layoffs. While it can be difficult, it's crucial to approach this process with objectivity and a focus on the long-term success of your business.

2. Gather necessary information  

Gathering necessary information is a critical step in laying off employees with the dignity they deserve. Before making any decisions, you should take the time to gather all the pertinent information related to the layoff process, such as: 

  • Employee records
  • Performance reviews
  • Job descriptions
  • Roles and responsibilities for employees
  • Company policies regarding layoffs. 

You’ll also want to collect relevant information for employees ahead of time, such as severance details.

3. Ensure it’s fair 

Business owners and managers should ensure that the layoff process is fair, objective, and transparent. It's key to base your layoff decision solely on performance and business needs. Make sure the layoffs avoid discrimination or personal bias and adhere to payroll laws and regulations. 

Other ways to ensure fairness include providing employees with a reasonable notice period, such as two weeks, and offering them a fair severance package based on experience and how long they’ve been with the company. 

4. Select the right time

Laying off employees is emotional and stressful, so choose an appropriate time and place to deliver the news. Schedule a meeting with the affected employee in a quiet and private setting. 

Midweek can be an ideal time, as it allows enough time for employees to handle any work-related items while also being able to start their job search. 

Avoid delivering the news via email or phone, and be mindful of what the employee has going on in their personal life.

Small businesses can also consider alternatives to laying off employees, such as work-sharing or reducing work hours. This allows businesses to retain their workforce while still cutting costs.

Best practices for laying off small business employees

An illustration of the dos and don'ts of compassionate layoffs.

Laying off employees is never an easy task, especially for small businesses that rely heavily on their team's support and hard work. If a time comes when you have to lay off long-term employees, you’ll want to have a clear and well-defined process in place. 

Create a layoff plan

The layoff process should include details such as who will be involved in the decision-making process, how to notify the affected employees, and what kind of support and resources to provide during the transition period. 

Consider factors such as who will be conducting the notification meetings, where they will take place, and what information to share during the meetings.

Also ensure you plan for necessary messages or updates to other employees, clients, and stakeholders. You should outline your layoff plan in the company policy or employee handbook and communicate it to all necessary employees. 

Note that if you are covered by the WARN Act (which most companies with 100 or more full-time employees are) you may have to meet certain notice requirements if you are doing a sizable layoff.

While handling layoffs in person is best practice, you’ll also want to provide formal notice of the layoff in writing.

Provide transition initiatives

A transition plan will help affected employees and should outline the specifics of the process, including timelines and next steps. Providing a clear transition plan can help ease some of the uncertainty and anxiety employees may feel during this challenging time. 

Items you should mention to help with the transition include: 

  • Whether there’s a severance package, which can include compensation or continuation of benefits for a set period. 
  • When and how to expect paid time off payout (aka compensation for unused paid time off). 
  • If you ‌offer outplacement services like resume writing assistance, job search help, and career coaching or development services. 
  • If they’re eligible and how to apply for unemployment insurance. 

By providing both practical and emotional support, businesses can help foster a positive transition for their employees and maintain a positive relationship with former and current employees despite economic hardships.

When determining what to include in a severance package, it's important to consider the employee's length of service, job title, and other factors that might impact their ability to find new employment.

Build morale

While the focus may be on those who are being let go, it's crucial for businesses to take steps to build the morale of their remaining workforce. Those employees may be experiencing a range of emotions like fear, uncertainty, and guilt.

One way to build morale is to communicate openly and honestly about the layoff process. Employees may feel more secure knowing that the business is transparent about what's happening and why.

It's also important to offer support and resources to help employees cope with any emotions they may be feeling due to the layoffs. This can include counseling services, support groups, or even an open-door policy for employees to discuss their concerns.

Communication tips for laying off employees with dignity

How to communicate layoffs

One of the most critical aspects of laying off employees with dignity and respect is communication. The way a business owner or manager communicates layoffs can have a profound impact on the emotional and mental well-being of all employees. Here are some tips to help business leaders communicate layoffs in a respectful and compassionate way: 

Do it in person

When it comes to laying off employees, it can be tempting to inform them via email or phone calls. However, this can negatively impact employees and the company as a whole.

Making an effort to inform employees of layoffs in person (or via video if necessary) is a crucial step in maintaining dignity and respect throughout the process. While it may be difficult to have these conversations face-to-face, it demonstrates that the business values its employees and recognizes the gravity of the situation.

Notifying employees of layoffs in person can help prevent confusion or misunderstandings that may arise from electronic communication. It also allows for a controlled and respectful environment, as opposed to the potentially chaotic and emotional response that can come from an email or phone call.

Be transparent but empathetic

When delivering the news to employees, it's important to be transparent and honest about why the layoff is necessary, such as cash flow problems or economic concerns.  Start by expressing gratitude for the employee's contributions to the company and acknowledging the challenging nature of the situation. 

If the layoff is due to performance issues, be specific about what those issues were and how they led to the decision to lay off employees. Being transparent helps employees better understand why ‌layoffs are happening and reduces feelings of confusion or mistrust.

At the same time, show empathy and extra care throughout the layoff process by acknowledging their emotional response to the news. Use statements such as, "I understand this is hard news to hear," or "I know this is a difficult time for you."  Ensure that key players involved in the process, such as senior managers, also understand the need for empathy and extra care.

Don’t overpromise

The decision to lay off employees is never an easy one, and a company may want to do everything it can to soften the blow and ease the transition. However, it's important to avoid overpromising during the layoff process.

Making promises that you can't keep or providing false hope can have negative consequences for both the affected employees and the company as a whole. Additionally, employees may feel misled or betrayed, and your company's reputation can suffer.

For example, promises about outplacement services, unemployment, and job search resources should be made with caution. While these resources can be valuable for laid-off employees, it's important to be realistic about what you can offer.

Empower your business to move forward

Laying off employees is never an easy decision. However, by handling the process with dignity, empathy, and extra care, your business can help make the transition period as positive as possible for everyone involved. 

Remember that how you handle layoffs will impact the affected employees and your business's reputation in the broader business community. If you have too much on your plate, streamlining your human resources processes might make things easier.

How to communicate layoffs

How to lay off employees with dignity FAQ

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