[Pandemic Guide] Laying off employees during the pandemic

Businesses are suffering heavy losses due to the impacts of the Covid-19 pandemic. Leaders are also faced with several choices: reduce salaries, reduce working hours, or lay off employees. In force majeure situations, layoffs are an unavoidable measure. However, how can reductions be made so that policies are both reasonable, fair, and humane? 

Layoffs – Are They Necessary Yet?

When the impact of Covid-19 directly affects a business’s operations and survival, a common mistake managers make is to immediately think of cutting costs by reducing staff. Consider what else you can do within your means before resorting to layoffs; this compassion creates more value for the company. 

First, think about optimizing your business’s operating costs in relation to the potential revenue during the pandemic and your company’s cash reserves. You need to carefully calculate the total reserves and projected revenue during the pandemic, and consider the fixed operating expenses such as rent, bills, taxes, insurance, and employee salaries. Don’t forget to account for any government support, and seek assistance from investors, suppliers, and landlords.

If the spending deficit is not too large, say around 10-20%, you can decide to cut salaries from leadership to employees by 20-50%, depending on the deficit and your business sector. This approach can temporarily salvage your company’s operational situation in the early stages without having to remove anyone from this “survival” battle. However, any salary reduction must be agreed upon by both the business and the employees. This is also a way to identify which employees are loyal and willing to stand by you in building the company. 

Another factor to consider is the contract compensation for permanent employees. According to Article 41 of the 2019 Labor Code, if an employer unilaterally terminates a labor contract unlawfully, they must compensate the employee for both material and moral damages. The compensation amount varies depending on the case and may include: social and health insurance, unemployment insurance, severance pay, and compensation of at least 2 months’ salary under the labor contract. Therefore, when comparing the costs of contract termination with the costs of retaining employees during the social distancing period, you need to carefully consider which expenditure is more beneficial for the business at this time. 

If Layoffs Are Necessary, Who Should Be Let Go?

If all efforts to maintain business operations while ensuring stable employment for workers fail to salvage the situation—if business activities are ineffective amid instability, there is no revenue, and the company is continuously incurring losses to cover operating costs—then the decision to reduce staff must ultimately be made. 

In this case, you need to clearly understand your business’s operational capacity (as a percentage) during the pandemic within your specific industry. Then, assess the activity levels of different departments to determine which ones should be downsized first and which ones later. 

For example, if you run a restaurant, food service business, or an entertainment venue like a bar, your company is 100% paralyzed, and all departments must halt operations. You are forced to ask employees to take unpaid leave during social distancing. You might also consider complete staff reduction. However, after the pandemic, restoring operations will require significant time and expense to find suitable employees who can catch up with your business/operations. Consider the costs of recruitment and training versus the short-term cost of retaining people now. Some suggestions to solve the problem of retaining talented employees include: advancing their basic salary or sending in-kind gifts like essential foods to provide support during the pandemic.

If you are in a business that can still generate some revenue, certain departments will undoubtedly need to continue working to ensure stable operations during the pandemic. However, with limited funds, the business can only focus on personnel who deliver tangible results. You will still have to make the decision to lay off employees who do not bring value to the company, those who fail to meet KPI commitments, quality standards, or performance benchmarks. 

For Laid-Off Employees – What Should Be Done?

First, you must prepare yourself and consider how to convey this message to your employees. This will be difficult and uncomfortable for both you and the employees, emotionally and financially. You need to know what to do to handle it humanely. This includes: 

Don’t Surprise Them: Announce in advance through the company’s internal network that you have done your best to avoid letting anyone go, but unfortunately, you will have to send notifications to some individuals via email. 

Do It Directly: After the announcement, contact the laid-off employee directly and clearly and concisely explain the force majeure situation affecting the business. This is the main reason for having to make this sad decision for them. List the main procedures the employee needs to complete, such as the termination agreement and payment of salary corresponding to their time and workload. Importantly, express the desire to consider this employee first if the company recruits for a similar or suitable position after the pandemic. 

Support Policies: When an employee is laid off during the pandemic, it means they lose an income source and face worries about expenses. If both parties agree to the contract termination, the business should provide support such as: severance pay, unemployment insurance, and compensation of at least 2 months’ salary. Concurrently, you should facilitate the procedures to help the employee navigate unemployment benefits. At the very least, let them know where to apply for benefits.  

A Token of Appreciation: To express deep and sincere gratitude for the employee’s contributions and commitment, the company can decide to give a small gift, which could be a company product or essential food items, to soften the blow and add a humane touch to your business. 

Many employers face difficult choices as they take steps to weather the economic storm brought on by the pandemic. Unfortunately, in many cases, layoffs are unavoidable. However, no matter what, if you want to sustain your business after the pandemic, strive to maintain an image of a company that is fair and loyal to those who have journeyed with you. 

“Fire tests gold, adversity tests strength.” It is at times like these that a leader’s courage is needed to steer the ship, not just to “survive” but also to always preserve the image of a decent and humane organization.