When is the Right Time to Lay off Employees?

For small business owners, the excitement and stress of survival often leads to tough decision making on a personal level.

Treading water in the present economy, until things “improve” is difficult for larger companies, but may not be an option for small employers, as they watch company profitability slide.

Having to lay off employees who’ve been trained, and have dedicated time, effort, and loyalty to the growth of the business is a last resort. Cuts in staff mean taking a risk that when things do improve, a small business won’t have the support it needs to handle the upturn. Remaining employees’ morale is at risk when they see their coworkers let go.

Employers must look at certain factors in making the painful decision to conduct layoffs, when it’s for the good of the company:

• When revenues are consistently low - When a small business isn’t as profitable as it once was an employer can lay awake at night trying to figure out ways to cut costs or bring in more income. Many employers may try to find ways to reduce payroll costs or cut office expenses, before having to deal with the painful process of laying off their employees. The reality is that when an owner has to make the decision to lay off staff, it's important to be upfront with his remaining workers and assure them that there's a plan in place to bring the company around. Explaining the decision for cutting staff as necessary to keep the company in business, seeking collaboration in efforts to increase revenue, and being reassuring while open and honest, will help ensure respect from those still employed. 
• When an employee isn’t pulling their own weight - Small businesses can't afford to have the overhead costs of an employee who just isn't doing his job. Business owners hire employees to make a profit for the business. When an employee fails to follow through on his job, the employer should offer him opportunities to make some changes and find out what’s getting in the way of productivity, making every effort to help him turn things around. When these efforts are unsuccessful, handle the layoff as respectfully as possible, breaking the news to him in person. Remember that this person probably had social ties within the company, so it's important to be as sensitive as possible, in order to maintain the sense of being a fair leader amongst office staff.
• When jobs within a company are unnecessary, or expensive - Often downsizing can include jobs that are duplicated among staff or are no longer relevant to productivity. Shifting job responsibilities of an employee with talent more suited to a different position, or providing extra responsibility for those employees who can handle it, streamlines overhead costs. During a layoff, explaining this as part of the plan can help remaining employees feel more stability in the decision-making, especially if the employer explains that layoffs have to do with business efficiency, and not job performance.
• When a company is going out of business - Let's face it sometimes the inevitable happens and a small company can't sustain itself, finding it necessary to close its doors. Staff usually know when a company is in trouble, often gossiping with each other about the state of affairs, long before any decisions are made to close the company. It's important for a small business owner to offer information to employees, providing them with plenty of notice, and promises of help with referral opportunities. A credible relationship between employer and employee should be maintained as much as possible in the event that future business relationships can resume.

There is not a good time to have to lay off employees, but when a small business is struggling, it’s an employer’s duty to cut costs in order to make the business more efficient and profitable.

When an employer is open, honest, and respectful with his staff, they may be more understanding about the need to downsize.

After all, in times like these, most people are aware of the slow economy, its toll on business owners, and the decisions they must make.