Reduction in Force Guidelines: Is a RIF the Right Answer?
Developing a new talent management strategy?
You need a tool that prices jobs exactly to your candidate's education, experience, certifications and skill set. Request a demo of PayScale's compensation solutions
and see how having the most accurate salary data available can save you money.
Looking at ways to cut costs inevitably brings up the heavy expense of paying salary and benefits to your employees. Your first question should be, “Is a RIF the right answer for us?” Sure, it could be an easy and quick way to reduce HR costs but does it make sense for the long-term?
A reduction in force is an extreme step and can have a dramatic impact on any company. There are a lot of stories recently about employees and companies coming up with creative alternatives to workforce reductions, including reducing work schedules. So, asking employees for creative solutions is one option.
Are There Alternatives to a Workforce Reduction?
Four alternatives to consider before your company enacts a reduction in force are the following:
- Hiring freeze. Would a hiring freeze mitigate costs? Decide whether the company can accomplish its mission if new talent and staff aren’t brought in.
- Salary reduction. Where are you overspending for talent? Be careful about the policy you use when deciding where to reduce salary but effective implementation can produce significant enough cost savings to avoid or reduce the impact of a RIF. For example, let’s say 15% of the employees in a company with 250 people are above market rate or pay range. If these 15%, or 38 employees, earn an average of $45,000 a year and the overpayment averages 5%, then the company is spending $84,000 a year that it doesn’t have to. More information about identifying employees to “red circle” can be found in HR Cost Cutting with a Red Circle Policy.
- Employee contributions. You spend more on employees than just salary. Health benefits and 401K matching add up quickly. Could your employees contribute more to their health insurance? Perhaps your employees will be willing to share more costs if their contributions reduce or eliminate RIFs. This decision might be subject to change over time, depending on your company compensation policies and your industry.
- Natural attrition. Will retirement, or people leaving voluntarily, result in enough cost savings to avoid lay-offs? Perhaps you can adjust to the open positions left by recent retirees by moving your current staff to be moved around. The amount of attrition in the company and industry should be studied carefully and taken into account for an accurate estimate.
If a RIF Is Needed, How Will Cuts Be Made?
If every option has been reviewed and a RIF is the best next step for your company, it’s important to be thoughtful about how you go forward with it. You must consider the following:
- Will the reduction in force impact only certain departments or divisions and have a less dramatic impact on the whole organization?
- Will the reduction in force occur throughout the entire organization?
To make this decision, senior management needs to be involved and the company needs to analyze where it is profitable.
Some other workforce reduction questions to consider include:
- 1. Which employees are essential to keeping your company profitable?
- 2. What are the skill sets that your current employees have?
- 3. What skill sets will the company need in the future to grow and remain profitable?
- 4. Are there internal people who can close that gap on needed skills for the future or are you going to hire externally?
- 5. How does the company current workforce fit within the long term strategy?<H2>Selection Criteria for Workforce Reduction
Who Will Be Reduced? Manager Determinations
While individual managers need to be involved in the critical job analyses phase, you may want to restrict their involvement in the final decision making and their access to the final “to be RIFed” lists as you don’t want information to get out too early. The managers need to analyze what positions in their department help drive the primary mission of the organization, then the secondary missions. Only after those positions have been identified, does a manager look at individual employees to determine:
- Performance. Are they performing up to expectations?
- Aptitude. After a reduction in force, there is usually the same amount of work and less people to do it. Are the remaining people able to evolve and change? Will they be able to handle an expanded or new role?
- Attitude. While harder to measure, people who are very resistant to change might make the post-RIF environment more difficult and possibly bring down the more positive attitudes of other remaining employees.
Who Will Be Reduced? HR & Company Review
After your employees have been ranked by their managers, HR and senior management need to determine if some of the following legal issues might be involved and if a legal review is necessary. Make sure to take these laws into consideration when setting your reduction in force guidelines:
- Protected leave. Laws and policies around FMLA, maternity leaves, disabilities leaves, and other leaves vary among states and countries. You can layoff these people but the reasons why their positions are impacted needs to be well documented.
- Retaliation claim. You need to document well any reduction in force decision which impacts someone who recently complained of discrimination, brought attention to a particular issue, or has whistle blower protection, etc., to ensure that retaliation is not involved.
- Adverse impact analysis. Is there any impact on protected classes such as those involving race and gender and what are the local and national laws? You can still move forward but line things up and document them well.
Develop a RIF Communication Plan
Once the tough decisions have been made at the upper management level about who will be let go, the tricky process of relaying the news to your employees begins. A lot of thought and planning has to occur about this communication. The following is a list of reduction in force guidelines and issues to consider before you go public:
- Notice periods. What are the local and national laws (such as the WARN Act) and other notice requirements that are involved? Make sure to consult with an attorney. If there are no legal requirements, it’s often considered best to implement the RIF quickly as it is like taking off a bandage. Quick action makes it easier for people who are leaving and staying.
- Benefits/entitlements for displaced employees. All severance information should be made clear and so that everyone understands it. Try to predict any questions that might come up and provide that information from the start.
- Releases. It is increasingly popular to provide incentives for employees to sign a release against taking future actions against your company. But, be sure to have a lawyer review the release as there are very explicit rules around releases.
- Communicating with survivors. Your remaining employees will now have to achieve the same level of output, if not more, so taking time to acknowledge and motivate them is a really important part of any communication plan. How can you give them a sense of hope and a belief that the recent RIF will keep the company moving forward?
- Safeguarding employees and company assets. Be sure that the key people know the processes and procedures for removing computer and building access. Prepare exit check lists, as well.
Do you have a topic you would like Compensation Today to cover? Write us at email@example.com.
Are you paying your best employees enough to retain them as the economy picks back up? Get up-to-date and make sure your external salary market data is specific enough to the education, skills set and experience of employees you want to keep. Give a PayScale demo a try.