Kindly Handling The Unkindest Cuts of All: Jobs – Small Businesses Have Their Own Set of Challenges When Making Layoffs

Tough times call for tough decisions, and in a slumping economy, one of the hardest choices for small-business owners to make is whether, and how, to let go of employees.

“Unfortunately, because of some of the things that are happening in the economy, you can’t keep everyone,” said Walter Molosh, president of Tri-State Industrial, a Dover-based industrial contractor. “You have to downsize because you don’t have the volume of work to provide them.”

Molosh laid off four employees in September because of a lack of work, but then rehired three of his employees two months later, when new projects came in, he said. But Tri-State could be in for another round of layoffs if any of the company’s capital projects currently on hold end up being canceled, he said.

Salaries and compensation, such as benefits, are the largest single expenditure for most companies, according to Compensation Resources Inc. in Upper Saddle River. In a recent survey from the firm, 7.1 percent of small and midsized businesses nationwide performed layoffs in 2008, up from 4.6 percent in 2006.

Whenever possible, businesses should consider alternatives to layoffs, such as asking employees to work four-day weeks instead of five, or taking unpaid days off, said Ed Kurocka, a principal of Onsight Advisors LLC, a Yardley, Pa.-based management and human resources consulting firm. “Any way to reduce labor costs for a temporary period, at least on a trial basis, is something businesses should consider,” he said.

If downsizing is unavoidable, small-business owners should move quickly to inform their staff about the possibility of layoffs — ideally months ahead of time, he said. “I’ve seen a lot of organizations suffer and employees turn sour because they’re never informed, never saw it coming,” Kurocka said. It’s important to get ahead of the rumor mill, he added. “As management, you want to make sure the first things they hear come from you,” he said. “That’s going to lend a lot of credibility to what you have to say.”

At the same time, making such an announcement has it risks, Kurocka said. “As soon as you tell people there might be layoffs, you’re going to risk your good people going out and looking for new jobs,” he said. Businesses should therefore consider an employee retention plan, such as offering bonuses to workers who stay on for a certain period of time, to prevent the best workers from jumping ship, he said.

Staffing cuts should also be done in one fell swoop, rather than in dribs and drabs, said Douglas Duncan, president of Your HR Solutions Inc. in Maplewood, adding that more than half of his 200 customers are laying off anywhere from 10 percent to 50 percent of their work forces. “The worst process you can use is the slow drip — it’s the most discouraging way to do things,” he said. “Lay people off that you need to lay off, and get the organization back together.”

Small-business owners also need to empathize with workers who are not downsized, Duncan said. “A layoff is like a death in your family — these are friends that are no longer with you,” he said. “So be understanding that the people who remain are hurting.”

But the downsizing process has its pitfalls, Duncan said. Aside from litigation and security breaches from former employees, small-business owners also have to deal with a loss of knowledge as a result of a worker’s departure, and determine how that workload will be absorbed by remaining employees, he said. A company will need to ensure those workers will be well-trained in order to get up to speed quickly, he said.

Small businesses also face their own particular challenges when making layoffs, Kurocka said. While a larger business may have the resources to set up and implement severance and retention plans, a small business may not, and may suffer graver consequences if they make a misstep in the downsizing process. “You don’t want to tarnish your image by doing the wrong thing,” he said. “Your reputation in the community is perhaps more at stake and harder to uphold than if you’re a big-league player.”

But as difficult as downsizing can be, Molosh does see a bright side. “It actually strengthens our organization — it cuts the weak out,” he said. Laying off employees who are not right for a position, or eliminating a position altogether, can provide the remaining workers with new opportunities, he said. “When you give certain people more opportunity, and the right opportunity, you’d be surprised what you can get out of them.”