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laid off employee

How and When to Lay Off Employees

Employee layoffs are one of the toughest situations managers face in the workplace. Because layoffs are typically unrelated to employee misconduct, they tend to involve a lot of emotion. But sometimes, layoffs are unavoidable. While they should be a last resort for a company, there are situations where it’s in the company’s best interest to let some employees go. If the time arises for a company to consider layoffs, they should first consider other options less detrimental to morale. Second, they should methodically decide which employees to let go. And finally, employers should find ways to support the employees who are laid off.


Consider Other Options

Layoffs should be a last resort. If at all possible, upper-level managers should consider all other options before laying off employees. Layoffs significantly reduce morale and productivity among remaining staff. Furthermore, they may have unintended consequences like broken trust and increasing resignation rates.

Employers should first consider alternative options. Some common alternatives include:

    • Providing voluntary termination incentives.
    • Cutting back employee hours.
    • Limiting or cutting out overtime.
    • Freezing raises and bonuses.
    • Implementing furlough.

These alternatives help reduce labor costs while maintaining morale and keeping the best employees. In some cases, alternative options can even boost morale because reducing hours allows for more work-life balance and personal wellness.


Who Gets Let Go?

Deciding which employees get laid off is often the hardest part of layoffs. There might be personal reasons, morale considerations, legal issues, and more to take into account when deciding whom to let go. However employers decide who gets the cut, the method should be based on unbiased metrics.

Most often, cuts are decided based on methods such as last in, first out, lowest performers, or positions that are no longer needed. When deciding whom to lay off, focus on jobs and positions, not individuals. SHRM states, “If an employer relies on performance-based criteria in selecting who will be laid off, it should minimize the level of subjectivity. For example, performance-based criteria that account for objective sales targets or other objective performance metrics are easier to defend in court than performance-based criteria that consider only managers’ opinions.”

Additionally, when companies lay off multiple employees, it’s important to make sure there’s not a disproportionate number of layoffs within a protected class. For example, there should not be a strong correlation among laid off employees such as those nearing retirement age, those of a certain race or religion, etc. Failure to identify a correlation is likely to result in a lawsuit. Nolo states, “Make sure your layoff plan doesn’t discriminate (or appear to discriminate) on an illegal basis such as race, age, or gender. For example, if you lay off the workers on your list, will the company be getting rid of a disproportionate number of women or minority workers?”


Offer Support

Severance packages are not a legal requirement, but they are a sign of goodwill. They are a common means of supporting valued employees as they leave the company. Packages vary based on the company, but often include a portion of the employee’s salary and benefits. Employers can also offer their laid-off employees support in the form of third-party resume counseling and letters of recommendation.

One of the most valuable benefits employers can include in a severance package is a financial education course. Of course, the best time to offer this is while workers are still employed with the company. Financial education as an employee benefit can help workers build savings and prepare for a loss of income. But it can also be beneficial during times of transition when individuals have to rework their budgets. Financial education helps individuals learn to manage on less money in the event of job loss.



Layoffs are challenging for employees and employers alike. There are many alternatives that may help reduce labor costs, but laying off employees is sometimes a necessity. If letting go of employees is in the company’s best interest, it’s important for employers to be unbiased in their decisions and to support those who are let go. Employers should be prepared to offer assistance in whatever way they can, whether it’s with a severance package, a letter of recommendation, or a financial education course to help take the sting out of financial stress.

Find out how 101 Financial’s Workplace Wellness program helps employees build savings, get out of debt, and prepare financially for income loss. 

Sources: SHRM, Investopedia, Patriot Software, Nolo