Voluntary Layoffs: What You Need to Know (Plus Downloadable Guides)
May 02, 2018 by Josh Hrala
Layoffs are one the most stressful things HR has to do on a regular basis. Whether it’s because of financial hardship, a need for new talent, or was triggered by a bad hire or poor fit, layoffs are no fun for anyone involved.
Usually, layoffs are involuntary, meaning that those who are let go are chosen by management because their position is no longer needed or the company can no longer support the role. However, there are other forms of layoffs, too, such as voluntary layoffs that can make the process a lot smoother because people will willingly take a layoff package.
Despite this fact, many organizations are on the fence about voluntary layoffs, wondering whether or not their company is a good fit for them. Well, to help with that, this blog will go over everything you need to know about voluntary layoffs, including why they are important, how they are carried out, and what offerings you need to extend to your exiting staff members to make sure the package is enticing and also helpful.
Let’s get started with the basics and work our way up.
What Is a Voluntary Layoff?
A voluntary layoff is when a worker decides to take a severance package on their own instead of being selected by management. Most importantly, voluntary layoffs can have the same financial benefits as normal layoffs without all of the headaches that can come from holding a traditional event.
Basically, if a company is in a tough spot and needs to let people go, they have two options. One, they can select employees to be let go based on a wide variety of categories. (You can read all about how to select employees for a layoff event here.) Two, they could offer a program that extends a certain severance package to individuals who may want to voluntarily step down.
The latter is obviously the better option if your company can swing it. By offering a voluntary program, your company reduces the chances that they will get hit by a lawsuit, have to pay unemployment, and will have their brand’s reputation drug through the mud.
It also helps the staff, too. For example, some employees may be ready to take a severance package and change roles. However, they are unwilling to step down normally because they don’t want to go broke looking for a new job without support.
Voluntary layoffs incentives can allow those workers to identify themselves and make their switch, helping the company and them personally in the process.
How Does a Voluntary Layoff Typically Work?
There’s no set way to hold a voluntary layoff. The best way to handle them, though, is to look at how other organizations handle any type of voluntary reduction in force (RIF), such as a voluntary retirement.
Basically, the company sees that they need to reduce their workforce because of financial reasons (or others). They are confronted by the fact that if they layoff select workers they could run the risk of having their reputation tarnished or triggering a lawsuit. So, instead of taking that traditional route, they decide to see if anyone wants to volunteer to be let go.
The first step in this process is for the company to announce the incentive to their staff. This announcement has to be as transparent as possible. The recommended route is to send a company-wide notification that details what positions and requirements are needed for a person to take the incentive.
For example, the company can say that they are trying to reduce their manufacturing staff, meaning that anyone in that area can apply for the voluntary layoff package (sometimes called a voluntary separation agreement or program).
We recommend making sure that you make requirements that target the specific area of the business that needs a reduction. However, make sure you are not targeting people by age, gender or any other criteria that can be seen as discriminatory.
Now’s a good time to mention that, like with any reduction event, you need to work closely with your legal counsel to ensure you are following all local, state, and federal laws before you implement an incentive like this. It is vital that you do not discriminate against anyone. We are not lawyers.
Once the requirements are nailed down and you can send out the announcement. It’s time to wait and see who wants to take it. But what makes a voluntary layoff package enticing to begin with?
Let’s take a look.
Voluntary Layoffs: What Makes the Package Enticing?
When a traditional layoff occurs, HR should handle it in the following ways.
After management determines what roles will be let go, HR and upper management should work together to alert those impacted by first sending them an email. You can see how a letter like this is traditionally written here:
Once the staff members are alerted, HR typically holds a meeting where they explain in more detail the reason for the layoff and also what benefits come with the severance package.
The severance package for voluntary layoff events is where the incentive comes from. Basically, you should offer to pay a better-than-average severance rate, which is why voluntary layoff plans are sometimes called ‘buyouts.’
By offering a decent severance payment, you allow the staff member more time to find a new role elsewhere without breaking their bank account or forcing them to take a part-time job just to keep the lights on while they hunt their next full-time opportunity.
The next benefit the company should offer is outplacement services.
As a refresher, outplacement is a service that HR departments can extend to outbound employees that helps them find a new role in another company. Outplacement typically involves working with a career coach who helps them find new opportunities in their specific field.
The best outplacement providers couple expert coaching with online platforms that help job seekers craft their resumes, network on sites like LinkedIn, apply to job board postings, and educate themselves on the current job market. All in all, outplacement is designed to get people back to work faster.
When you are trying to get individuals to apply for a voluntary layoff incentive, having a stronger severance agreement and a strong outplacement provider can extremely beneficial because no one is going to jeopardize their future if they don’t have to. With these benefits in place, they won’t be worried about landing a new role because they will have the support system they need to thrive.
That’s all great, you might be thinking, but why would someone want to take a voluntary layoff? And, does anyone ever actually take it?
Let’s dig in here, too.
Are Voluntary Layoffs Actually Attractive?
To answer this question, let’s look at a real-life example of a company that everyone knows who held a voluntary layoff in the recent past: Boeing.
Back in March of 2017, Boeing held a voluntary layoff in Seattle – where they’re headquartered – which was specifically designed to reduce their machinists and engineers.
“Boeing has accepted 1,880 voluntary layoffs from its union machinists and engineers in the Seattle area, the unions said on Thursday, part of the jet maker’s drive to cut costs through job reductions and other measures,” reports Reuters.
“Boeing’s machinists union, the touch labor that builds airplanes near Seattle, said about 1,575 workers had taken voluntary layoffs by the deadline in February.”
That’s a lot of people! If Boeing would have cut all of those jobs through involuntary layoffs, they might have run the risk of having their stock prices fall drastically and consumers turn against them.
However, they most likely offered individuals a good severance plan that was enticing because workers wanted to either leave and start something new or use the severance as a way to retire early.
“‘These are all voluntary, where people planned to retire or had other plans,’ said Connie Kelliher, a spokeswoman for the International Association of Machinists and Aerospace Workers District 751,” according to Reuters.
Basically, those who took up the offer had other plans and were going to use the voluntary layoff package as a way to put those plans into action.
The important part is to make sure that the package is enticing and not a low-ball offer. You want people to take the incentive, after all, which means that you should work to make the package something that you would take if offered it.
This does create a small problem, though:
What Happens If Not Enough People Take the Incentive?
While a properly planned and executed voluntary layoff incentive can save your company all of the downsides of an involuntary approach, you definitely run the risk of implementing the plan and not having enough staff members take the offer.
There’s not much you can do here except make the plan as enticing as possible, but what do you do if you still can’t make ends meet after a voluntary program has expired? Chances are, involuntary layoffs will happen down the road.
“There are many pros and cons to this approach and I have been a part of creating and administering these programs successfully,” reports Rusty Rueff from Glassdoor.
“Where they fall down is when the offer is not accepted by enough people and the alternative is that there is still a forced reduction that comes after the voluntary period has passed. That in turn leaves those who didn’t accept the package, who get laid off later, with a smaller package, upset and not being long-term goodwill ambassadors of the company.”
So, in other words, you can still run the risk of having to hold a normal layoff even if you extend a better, involuntary layoff incentive to your staffers. The sad fact of the matter is that there isn’t much else to be done about this. You tried to offer a great program but it just didn’t work out.
Make sure you understand these issues before implementing a program at your office to ensure that it will go off without a hitch.
Okay, now that that problem is out of the way, let’s explore why a company – not an employee – would benefit from a voluntary layoff program.
The Benefits of Holding a Voluntary Layoff
We’ve briefly touched on many of these points already, but here is a complete rundown.
When it comes to layoff events, the public is never happy about them. It doesn’t matter if you are holding them to rightsize your company, to refocus your workforce for a new project, or because of the normal reason: financial issues, the public will always look poorly on them because it is generally thought of as a sign of bad business.
Now, of course that isn’t always the case. Layoffs are a fact of life in the business world, but the fact also remains: layoffs aren’t a great look.
The best way to get around holding a layoff event is to take all of the bad things about a layoff event and getting rid of them.
This means you can hold other events, such as a furlough, a voluntary retirement incentive, a pay freeze, a hiring freeze, or countless other options, including a voluntary layoff.
Why do all of these things seem to look better from the outside? Well, pretty much because they do not force people out of their jobs like a traditional layoff of reduction in force (RIF) does. Instead, they give the power to the employees who can decide if they want to leave or if they want to stay.
What this does for your company is that it keeps your head above water. Consider the Boeing story from a bit ago. That news article wasn’t about how Boeing suddenly terminated countless jobs. It had a different spin that put Boeing in a positive light, which is why voluntary layoffs are a good option.
A reputation takes years to build and can be lost within minutes, especially if a layoff triggers a lawsuit due to discrimination or some other issue.
By making the incentive attractive and completely voluntary, you can ensure that your staff members want to make the exit and you can support them by offering them severance. Your exiting staff members might be happy instead of defeated, which is a win-win for everyone – something that cannot be said for traditional layoffs that typically stress everyone out.
On that note, voluntary layoffs also impact your surviving staff members, too. Instead of holding a normal event, which can make people question their job security, a voluntary move allows only those ready to leave to make their exit.
If you hold an involuntary event, surviving staff members may start to resent your company and may jump ship later on, meaning that you went from a place where you had to let some people go to a place where no too many people have abandoned your company. This back and forth of having too many staff members and too little is bad for business because it costs a ton of money to onboard and offboard people.
How Do You Actually Implement a Voluntary Layoff?
Let’s now take a moment to get into the nuts and bolts of what it takes to implement a voluntary layoff.
First, some terminology.
Voluntary layoffs go by many names. Thought we’ve been using the normal term for it here – the one that your staff members will likely call it – some organizations call them voluntary separation programs, employee buyouts, and more.
The reason why ‘voluntary layoff’ is basically a slang term is because a layoff, on paper, is a temporary action. The actual definition of a layoff is a temporary job cut where the staff member will likely be able to return in the future.
A reduction in force (RIF), on the other hand, is what people generally mean and hear when a layoff is coming up. A RIF is a permanent job cut where the employee will not be offered a role at the company in the future.
It’s strange but layoff and RIFs have come to mean the same thing for the general public, though their legal and business definitions are quite different. This is where voluntary layoff programs are often called ‘separations’ or some other term that doesn’t use the word ‘layoff’ in it.
The Society for Human Resource Management (SHRM) – who calls these events voluntary separation programs – goes over how to implement a policy by first drafting up the paperwork that goes over the entire event. By having your policy on paper and following everything you’ve written, you can make sure you follow all of the appropriate steps and are also in compliance with all laws. Again, this policy should be reviewed by your legal counsel.
SHRM breaks down their sample voluntary retirement policy into categories that are easy to understand. They go like this:
- Purpose: State the purpose of the event: what are you trying to accomplish, who is eligible, etc.
- Definitions: say what a reduction in force is, what a voluntary layoff is. Make sure that this is in terms that a lay person can understand. There’s no use making these policies incomprehensible to folks outside of HR.
- Applicability: Again, who can apply to this incentive? What makes someone eligible? Be clear and concise.
- Procedures: Explain how the event will work and what steps are involved throughout the process.
- Eligibility: This seems redundant, right? But this section is to lay out what steps need taken for someone to apply. Basically, it protects the company from someone missing the boat.
- Documentation: What forms will the folks in the program receive? How will the whole process be documented and kept for records?
Now, let’s break these down more so you can easily configure your own policy.
Stating the Purpose of the Voluntary Layoff
The purpose section of the policy is to explain why the company would want to offer a voluntary program. This involves stating why the event is occurring, what it’s trying to accomplish and many other things. This can be broad for your general policy. You don’t need to talk about specifics – you can save that for when you hold an event and need to alert staff members. This policy is more generally for you to keep on file.
“This voluntary reduction in force (RIF) separation program facilitates an employee’s transition to retirement or early separation at will and provides access to state financial assistance for the pursuit of career opportunities, creates opportunities for [Company Name]’s restructuring and assists [Company Name] in meeting its fiscal responsibilities.”
Definitions: How to Define Terms in Your Policy
This section is the easiest because terminology rarely changes. The point of it is to make it so that anyone can understand what you are talking about.
HR is full of buzzwords and specific jargon that outsiders may find confusing. For a voluntary layoff plan, you need to really define two key phrases: layoff, and voluntary layoff.
Your section can look something like this:
Definitions: Layoff: A layoff is when a company temporarily reduces the headcount of specific departments, plants, or overall staff. Those impacted by a layoff are selected by management.
Voluntary Layoff: A temporary reduction in headcount that a staff member volunteers to undertake.
You can either spell out the definitions in a way that makes logical sense (as long as they are correct) in normal language or look up the definitions online and copy them from a source like a dictionary. We took them and made them our own words above to make sure that no one is confused.
Applicability: Who Can Take the Voluntary Layoff Offer?
This section is designed to allow you to offer a voluntary layoff package to specific groups in your organization. For example, if you have way too many welders and plumbers, you can offer the package to welders and plumbers because their area of operation is the one needing rightsized.
“All employees (including exempt, nonexempt, union and nonunion employees) are given consideration for participation in this program if they are in an area where the workload is being reduced. Generally, employees occupying critical or hard-to-fill positions, or with critical knowledge or skills, will not be allowed to participate except with the approval of the project manager.”
As you can see, they put in a there that specific areas will not be able to take up the offer. This protects you from losing staff members who are vital to your business goals.
Again, we must reiterate how important it is that you do not discriminate and target specific groups of individuals for their age, race, gender or any other non-job related things. Always consult your legal team. We, again, are not lawyers (you hopefully know this by now).
Procedures: The ‘How’ and ‘When’ of a Voluntary Layoff Program
The procedure part of the policy needs to go over a few things. The most important is the ‘when.’ Pretty much, you need to layout what would trigger a voluntary layoff event, how it would operate, and how long.
This, again, can be general when it comes to writing the policy. You can just list things such as financial downturns, rightsizing, etc. When you go to actually implement a program you will lay out a more focused reason when you announce the incentive to your staff members.
In this section, also go over why you made this policy. Obviously, it’s designed to help the company get over some form of financial issue or workforce planning problem. However, you also made it to avoid a traditional layoff of RIF. You can mention that here if you wish.
Eligibility: How Can Someone Sign Up?
This section gives a little overview of how someone signs up for the incentive and what makes them eligible. Think of this as more of a way to keep track of who wants to be in the program and who doesn’t.
The best way we can think of it is to consider this section of the policy as you would if you were entering a contest. What would the person have TO DO to be entered? The same can be said here. The employee has to complete a form, or talk with HR, etc. This isn’t about who is eligible to enroll, it’s more about how they enroll/apply.
This section is typically shorter than others, especially because this policy is meant merely as record and isn’t the actual application process.
Documentation: The Final Step
Yay! You’re almost there.
This step is all about how you will keep record of the event, how people will be alerted, and other things.
Detail how you will alert the staff members, what notices they will receive, and other forms of documentation. This is just a list of those documents, not the documents themselves.
Again, here’s part of SHRM’s example:
“Separation volunteers will be issued RIF separation notices effective on the RIF effective date of the original displaced employee. The notice will advise them of their entitlements under RIF.
Volunteers must sign a statement that they realize the action is irrevocable once they have been issued a RIF separation notice. However, [Company Name] may cancel the action if necessary.”
After you have completed this section, you are well on your way to having a full voluntary layoff policy on the books.
Remember, though, that this is just kind of a blanket policy that goes over how the event will work on a high-level. In order to actually implement an event, you have to follow the other steps listed above to ensure that you are complying with all of the best practices plus all of the laws.
Voluntary Layoffs: A Summary
Okay, we covered a ton of information here. Let’s have a quick rundown of everything to make sure we have everything covered.
What Is a Voluntary Layoff?
A voluntary layoff is when a company reduces headcount by allowing certain individuals to volunteer to be laid off. If the reduction is permanent, it is called a voluntary reduction in force or a voluntary separation program.
Who Can Use Voluntary Layoffs?
Any business can technically use a voluntary layoff as a means to downsize their headcount. Most of the time, medium to large businesses are typically the ones using it, though.
As for who can use the program inside the company, that is entirely up to management. Just make sure you do not target individuals in a discriminatory way.
Do People Actually Take the Offer?
According to multiple reports, more people than you may think will take up a voluntary layoff offer because they may secretly be looking for a new job, want to use the severance to kickstart retirement, or simply think that starting a new role elsewhere is interesting.
If we take Boeing as an example, they had nearly 2,000 people take up the package, which is quite a bit, saving them from the nasty parts of a traditional layoff event.
What Is the Benefit of an Event Like This?
In short, voluntary layoffs or separations take away a lot of negativity that comes with traditional RIFs or similar events because it takes the decision making element and places it in the hands of those being impacted instead of upper management.
Though management will likely come in and say that individuals from certain departments or projects are those eligible to take the offer, it allows folks in those departments to ultimately make the choice to leave.
What Are the Downsides?
The downside is that you can end up having too few people take the offer, leaving you open to the exact same traditional RIF or layoff event you were trying to avoid. Still, giving people a chance to take the offer is a good idea because it can work and often does.
What Makes a Program Enticing?
In order to have people take up the offer, you need to make sure that your severance agreement is worth their time. Make sure to provide outplacement services so that those that do take the incentive will be able to land on their feet in a new role. You can learn about outplacement pricing here:
Some places allow bargaining when it comes to severance agreements, too, which might be a good idea for your organization. It really depends on the event, who is let go, what your budget is like, and many other things.
What Laws Impact These Events?
There are countless laws that dictate how layoffs and RIFs need to go down. We recommend working closely with your legal team to make sure that you follow all local, state, and federal laws.
The Final Say
When it comes to voluntary layoffs, there’s a lot to consider.
After all, any event like this requires delicate planning to unfold successfully. If done correctly, though, it can have major benefits to your organization by letting you correct workforce planning issues, align your budget, and fix other issues that usually lead to traditional downsizing.
Want to learn more about voluntary layoffs? Download our guide here:
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