How to Properly Conduct Layoffs
By VICKY BROWN
Why Small Businesses Need a Layoff Plan
While major layoffs often make headlines at big corporations, small businesses also face tough decisions around downsizing. Whether it’s due to financial strain, restructuring, or the end of a major contract, layoffs may become necessary — and how you handle them can impact your business reputation, compliance status, and team morale.
The Difference Between Layoffs, Furloughs, and RIFs
Before you take action, it’s important to understand the terminology:
- A furlough is a temporary, unpaid leave with an expectation of return.
- A layoff is usually a permanent separation.
- A reduction in force (RIF) typically eliminates positions altogether.
Understanding these differences helps you communicate clearly and choose the right path for your business.
Know the Legal Obligations: WARN Act and State Laws
The federal WARN Act applies if you have 100+ employees and are laying off a significant number. But state-specific laws (like California’s WARN Act) can apply to companies with fewer employees. Even if you’re not legally required to give notice, doing so is a sign of respect — and often prevents problems later.
Plan Your Exit Strategy: Notice Periods and Final Pay
Decide if you’ll offer a notice period or provide pay in lieu of notice. In states like California, notice obligations can get tricky, especially around final pay and furloughs. At minimum, you must:
- Pay all earned wages, accrued vacation, and applicable bonuses/commissions
- Deliver the final paycheck on the employee’s last day
- Maintain sick leave balances for possible reinstatement
Don’t Forget About COBRA and Benefits
Health coverage typically ends at the close of the month. Most businesses are required to offer COBRA continuation — though employees pay for it themselves. Still, you’re responsible for providing a COBRA notice in a timely fashion. Make sure your benefits administrator or broker is ready to help.
“… if you approach the process with foresight, legal knowledge, and respect, you can minimize the damage — and protect both your people and your business.“
Should You Offer Severance or Outplacement?
While severance isn’t legally required, many small businesses choose to offer it in exchange for a signed separation agreement. This protects your business and offers employees support. Outplacement support — like resume help or job leads — can also soften the blow and preserve goodwill.
Handle the Day With Care: Logistics and Communication
Plan for:
- Disabling system access immediately
- Recovering company equipment
- Shipping personal items if needed
- Communicating with dignity and clarity
It’s not just what you say — it’s how you say it. Thoughtful communication helps prevent resentment and confusion.
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What If There’s a Union?
If your employees are covered by a collective bargaining agreement, consult your labor attorney before proceeding. There may be contract-specific rules around layoffs, severance, or notice that you’re required to follow.
A Quick Layoff Checklist
- Identify who will be affected
- Check WARN Act and state notice rules
- Decide on severance and notice periods
- Prepare final pay and COBRA notices
- Arrange system shutdown and equipment return
- Handle the conversation with care
Lead With Clarity and Compassion
Layoffs are painful. But if you approach the process with foresight, legal knowledge, and respect, you can minimize the damage — and protect both your people and your business. When the decision is made with care, and the process is handled responsibly, you can come through it stronger and more trusted as a leader.