If your organization has fallen on hard times, the thought has probably crossed your mind to hold a reduction event.
But trying to decide on what reduction event to have is always a tough decision.
There are so many options:
- Voluntary Layoff
- Reduction in Force (or a traditional layoff)
- Voluntary Retirement
- Reduced Work Hours
- Unpaid Sabbaticals
And as our workforces get more advanced, different types of reduction events arise all of the time!
But as we have talked with our clients, we have noticed that most human resources executives get stuck choosing between two specific types of reduction events: voluntary layoffs and traditional layoffs.
It makes sense…
These are the most similar in execution and structure, but if not properly analyzed, they could have huge impacts on your workforce. That is why we are going to run through the differences between voluntary layoffs and traditional layoffs, and the situations where it is best to use them.
But before we get started, make sure to download some of our resources to assist in which ever reduction event you choose:
Now, let’s get started!
Everything You Need To Know About Traditional Layoffs
Laying off employees is one of the toughest things your human resources team will ever do. It can be emotional and really stressful for all involved parties.
Many organizations use layoffs as a way to reduce costs when their company is in downturn. This downturn can arise for many different reasons, such as economic downturn, industry disruption, product line phase outs, public scandals, etc. (The list of why businesses could potentially face financial downturn is endless.)
Payroll is one of the largest expenses for any corporation, so reducing that line item on the balance sheet will help an organization improve their overall financial outlook. Thus, many CHROs choose this as a solution for improving an organization’s bottom line.
The hardest part of executing a layoff is choosing which employees, and sometimes even which departments should be laid off. Your executive team will have to analyze several factors, such as the amount of payroll they want reduced, and the overall strategic objectives of the organization.
For example, if you need to reduce your workforce by 30% to meet financial goals, but your strategy to increase revenues centers around a department that manufactures a specific widget, you would want to avoid laying off any personnel that directly impacts the production of said widgets.
That example is a very elementary use case of how difficult it is to choose which employees to lay off. You can read more about the different methods used to select personnel for reductions with our blog.
Depending on how many people you will be laying off, you organization might also have to comply with the WARN Act. This is a federal law that sets regulations on how an organization must give notice to their employees and to the government if they are taking measures to reduce their workforce.
Along with the federal WARN Act, many states have additional laws that your organization must comply with depending on where your employees are located (not just where your organization is headquartered). State WARN regulations are usually more restrictive, meaning that they require more notice, or apply to more organizations than the federal laws themselves. This is especially important if you have remote employees, as you will have to comply with the WARN Act regulations in the state where they live and work.
After your organization has selected which employees to layoff, you’ll have to prepare severance agreements and other documents for the notification. You’ll want to make sure that you have a company layoff letter that has been approved by your corporate counsel, and that the managers providing the notifications to employees have been properly trained and have a functioning layoff script.
Finally, you’ll want to make sure that your exiting employees receive outplacement services. This will help keep your employer brand intact, and shows good will towards your employees as they deal with this very difficult life change.
Everything You Need To Know Voluntary Layoffs
Voluntary layoffs are very similar to the traditional layoffs described above. The difference lies within how employees are chosen for the reduction event. Or rather, how they aren’t chosen.
In a voluntary layoff, employees self select to participate in the reduction event. Your HR team will send out a memo announcing the voluntary layoff event, and which employees are eligible to participate in it. It is recommended to send this memo out to everyone company wide, as to not target any one particular group. (This will help reduce your organization’s liability for discrimination, which will help avoid lawsuits.)
In the memo, your human resources team should provide instructions on how to apply for the voluntary layoff, and where to find more information. Usually, the application form and documents about the voluntary layoff are kept on an organization’s intranet.
On your organization’s intranet you should share information about how a participating employees benefits will be impacted, how much severance they will get, and additional voluntary severance benefits they will receive if they participate.
Many employees will have questions around how their retirement savings plans will be impacted, if they will be eligible for unemployment, and what the organization’s rehire policies are. As an HR team you should try to create documentation around any policies that might come into question before the announcement of the event to ensure fair treatment of all employees and a smooth execution.
And speaking of severance, we almost forgot one of the most important parts of a voluntary layoff! Voluntary layoff packages are usually more attractive than the severance in a traditional layoff package. This is to entice your employees to participate in the event.
Voluntary severance packages also include outplacement services. This will help your employees who have volunteered to be laid off find work much more quickly, showing good will on your part. It is also a smart move to keep your employer brand intact.
Traditional Layoffs vs Voluntary Layoffs: Deciding Between The Two
Now that you know the difference between voluntary layoffs and traditional layoffs (or what are sometimes referred to as reductions in force), let’s dive into how to decide which reduction event is the correct choice for your organization.
Voluntary layoffs may go over better with your workforce because you aren’t forcing anyone out of a job. People actively self select if they are interested in leaving, so this isn’t as damaging to your workforce morale or public employer brand.
The problem with allowing your employees to self select though is that they might not make the best choices for your organization. With a traditional layoff, you will get to select which employees are laid off from your organization. You can choose which employees make sense based on performance or business objectives.
With a voluntary layoff, you don’t have that control. You could incentivize someone to take your voluntary buyout package who is a high impact top performer. This could have devastating effects to your organization. And if you had a traditional layoff, you could avoid this situation altogether.
Now the argument is, if that higher performer wanted to leave, they would have in the next few months anyways. It is hard to say whether that is true or not, but you should think about the overall characteristics of your workforce. Do a lot of people want to leave? Are people generally happy at work? Analyze questions like this when trying to figure out if this is the right choice for your organization.
Next, with a voluntary layoff your organization will have to pick a buyout amount that is attractive enough to get people to volunteer. This is usually a feasible task, unless you have a very specific amount of people or payroll that you need reduced. If you make your buyout too attractive and generous, you will have more people volunteer than needed. Which will wipe out the workforce you need to continue to sustain your business goals.
Also, if you have too little people volunteer for the layoff, it could force your organization to have a traditional layoff afterwards. So, in this scenario, it would make more sense to have the traditional layoff from the start for efficiency's sake.
Having a traditional layoff so quickly after a voluntary layoff can also be fuel for a lawsuit. If your employees felt that they were pressured into taking a voluntary layoff or else they would be forced through a reduction in force, moving forwards with a traditional layoff could provide them evidence to support that claim.
In general, your organization should analyze business goals and future workforce needs before determining if a voluntary layoff or a traditional layoff is best. If you are discontinuing a whole line of business, or have to make large specific cuts to your payroll, a traditional layoff might be best. If you don’t have such tight restrictions, and care about the long term impact of a reduction event on your employer brand, a voluntary layoff might be best.