Planning for Possible Workforce Reductions

Layoffs are a necessary, yet undesirable, fact of life for any business facing lean times. This is especially true for contractors during the current pandemic, as an uncertain future has many of them searching for ways to prepare for a potential downturn.

It can become a delicate balancing act. While layoffs provide immediate savings, they can’t be allowed to hinder a contractor’s ability to accommodate current and anticipated work. Therefore, contractors should focus on the removal of underperformers, while taking steps to invest more in their best workers, project managers, and supervisors, as they’ll be needed in the future.

Ranking employees is often a good first step for any layoff plan. Most contractors can quickly identify as much as 10 percent of their workforce who aren’t necessary to uphold the business. Here are some common methods for accomplishing that goal:

Seniority-Based Selection

This method is simple. Essentially, the last employees to get hired become the first people to be let go. As a recent hire, they have yet to become organizational assets. There are always exceptions; for example, recent college graduates might make up for the lack of experience with a greater understanding of software and new technologies.

Employee Status Based Selection

This method focuses on providing more security to full-time employees. Contingent workers would be laid off, while workers with full-time employee status are given preference.

There is one drawback – the method underestimates the impact that contingent workers have on overall business. Many organizations have become increasingly reliant on contingent workers. In their case, it wouldn’t be a reliable or recommended method.

Performance-Based Selection

This method is one of the most popular, as it helps managers weed out poorly performing employees so that organizations don’t lose valuable assets. However, to correctly execute this method, a company must have a strong performance evaluation system.

Many times, performance evaluations aren’t objective or done on a regular basis. This can lead to legal liability when managers don’t have documentation to back up their layoff decisions.

Ultimately, a contractor should minimize the level of subjectivity. For example, performance-based criteria that account for objective sales targets or other objective performance metrics, such as measuring final job labor hours or dollars against the budget, are easier to justify than criteria that consider only managers’ opinions. No matter the methodology, a contractor should have a well-defined plan and performance documentation long before they need it. If projects are canceled, and there is a 10 to 30 percent reduction in business, contractors should have already identified their first and second rounds of layoffs.

Layoffs are often necessary to stay in business, as they can free up money for keeping those employees vital to the business. Otherwise, a contractor runs the risk of losing the people they really need. For information regarding whether or not your business may need to face potential layoffs, contact your local CRI advisor.