Layoffs: From A-Z Procedures, What Leaders Need to Know

Reducing the number of personnel to ensure operational efficiency is a common practice in the business operations of every company. So, what is workforce reduction? And what do managers need to pay attention to when carrying out this process? Let’s explore with 1Office in the article below.

What is workforce reduction?

Workforce reduction is the process of changing the number of employees in an organization, specifically decreasing the number of staff in a company. Implementing workforce reduction is simply the act of a company terminating employment contracts before their expiration date with a number of employees (two or more) at the same time.

Reducing the number of employees should be based on a strategy and implementation plan, following the organization’s phased orientation. However, workforce reduction can sometimes stem from objective reasons, forcing leadership to implement it to maintain the company’s business operations.

Forms of workforce reduction

Reducing the number of employees

During operations, a company can assess the value that its personnel bring and then decide on reductions based on specific criteria and standards. The result of this process is a decrease in the number of employees while still ensuring the necessary workload is handled. This not only helps the company maintain profitability but also minimizes costs related to salaries and other obligations to personnel.

Considering the value employees bring along with the amount of work they perform ensures that tasks are distributed reasonably and helps determine if other employees can take on a portion of that work. If a company needs to eliminate job positions, this is an action that the human resources department must carefully consider before implementing.

Eliminating unproductive departments

During a company’s operations, there is a possibility of overlap when multiple departments merge. In reality, other departments may be able to take on the responsibilities and perform the work that a particular department is currently handling. Therefore, the decision to eliminate a department can help reduce management complexity and maintain the operations of other departments.

During this process, managers will consider whether any departments are operating inefficiently and not contributing value to the company. If so, their tasks will be transferred to other departments.

4-Step process for workforce reduction in compliance with labor laws

Step 1: Develop and implement a labor utilization plan

According to Article 44, Clause 1 – Labor Code (2019), the labor utilization plan must include the following key information:

• The number and list of employees who will continue to be employed, including those retrained for continued employment and those transitioning to part-time work.
• The number and list of employees who will retire.
• The number and list of employees whose employment contracts will be terminated.
• The rights and obligations of the employer, employees, and other relevant parties in implementing the labor utilization plan.
• Measures and financial resources to ensure the plan’s implementation.

Step 2: Discuss the termination of personnel with the trade union

In the process of developing a new labor utilization plan, the employer must discuss and exchange opinions with the grassroots-level employee representative organization (if any).

If the organization cannot provide employment for the employees and decides to terminate their labor contracts, it is responsible for providing at least 30 days’ notice to the provincial-level People’s Committee and the employees.

Step 3: Provide written notification to the employees

When deciding on reductions, the Human Resources Department must provide at least 30 days’ notice to the employees with the following information:

• The employer’s address and legal representative.
• The number of employees whose labor contracts are expected to be terminated.
• The reason and specific time for the termination of the labor contracts.
• The estimated cost of paying severance allowance.

Step 4: Pay unemployment benefits

After handing over work and completing the termination procedures at the company, the employee will receive payments according to the benefits agreed upon in the contract and company policy:

• Salary.
• Unemployment benefits
• Payment for unused or remaining annual leave.
• Other payments related to the employee’s benefits.

Common mistakes when downsizing staff

Miscalculating the scale of layoffs

If a business downsizes its operational structure excessively, it can lead to labor shortages in production and business processes, causing a decrease in revenue. In particular, cutting key personnel with high productivity will almost certainly put the company at risk of bankruptcy.

To avoid this mistake, before implementing downsizing, managers need to carefully consider the causes and difficult situation the business is facing. Next, it is necessary to evaluate work capacity and consider the balance between departments and production lines to ensure the workforce size is sufficient to meet expected revenue levels.

Conducting mass layoffs

The leadership team should conduct careful discussions and evaluations to determine a reasonable list of employees to be laid off. The reduction process should not be carried out automatically or excessively. Such actions may reduce labor costs, but they will also affect the company’s output and product quality.

The business needs to review its business model to find a suitable cost optimization method, while addressing current difficulties and maximizing existing core competencies before considering downsizing. It is important to identify where the company’s current revenue comes from, which customer groups, and which products.

Downsizing in secret

Before making the decision to downsize, the business should provide a formal and clear written notice. This action benefits both parties: First, affected employees will have enough time to prepare and hand over unfinished work. Second, other members of the organization will understand and sympathize with the difficulties the business is facing, thereby making a greater effort to complete their tasks.

Lacking responsibility when downsizing

The downsizing process often causes anxiety and negatively impacts employee morale. In this situation, leaders often face feelings of guilt and try to avoid carrying out the layoffs. However, this can create unfavorable misunderstandings among the company’s employees.

Therefore, when implementing the decision to downsize, leaders need to create opportunities to meet and fulfill the commitments made. This could involve transferring employees to new positions or providing unemployment benefits. At the same time, they need to show a spirit of sharing difficulties and empathy with the laid-off employees. This not only helps create a stable psychological environment for the remaining employees but also demonstrates respect and concern for those who were terminated.

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The above is basic information related to downsizing in a business. We hope this content has helped managers better understand the process and important considerations for downsizing, thereby supporting the business in implementing effective measures while encouraging dedication from employees in their work.