As the COVID-19 pandemic disrupts work environments globally, companies are facing previously inconceivable personnel decisions.
Your employees are your most important asset; making decisions regarding their future can be a complex process that depends on your financial capacity and risk tolerance.
Below, we explore decisions that will impact your workforce’s employment status, steps to take as you’re making these considerations, and how this challenging period can provide experience to prepare you for future unexpected disruptions.
Before making any concrete decisions about your workforce, you should take the following immediate actions:
- Review your financial reserves and determine how deep you’re willing to dip into the reserves. Discipline is essential in this area.
- Quantify your current run rate and identify any non-personnel expenses you can eliminate or reduce.
- Contact you bank and determine your loan options—through the Small Business Administration (SBA) or other sources—to take advantage of the CARES Act relief aid.
As there’s no exact predictable timeline for COVID-19 disruption and its effects, you may need to make important personnel decisions more than once. You should plan to repeat these initial steps and conduct scenario planning in 30-day increments.
This will allow you to reflect on the most current updates, events, guidance, and other factors that will influence predictions for when the economy will begin to rebound.
You can then continue to determine your business’ financial viability month by month based on your:
- Revenue and expenditure forecasts
- Access to loans
- Use of reserves
Options for Employee-Related Decisions
After you’ve completed the initial steps and are ready to make initial decisions about your employees’ status, you’ll likely have the following primary options or some combination thereof:
- Retain employees
- Reduce hours
- Initiate layoffs
There are several factors to consider related to each option.
Employees can be retained at current compensation levels or reduced levels, for example 20% or 40%—one or two work days—across the board reduction. Pay reductions can only be implemented for future work and not past work.
Reductions in hours and layoffs can be implemented for all employees or a subset of employees, such as nonessential positions, low-performing individuals, or high-cost individuals.
Wherever possible, a reduction in hours should be leveraged over layoffs to retain employees. Although there will likely be a weak employment market in the near-term, layoffs are more likely to result in losing employees finitely.
Any decisions about bonuses should be made early to set employee expectations up front. These could include decisions such as paying bonuses if employees reach certain performance levels, or not paying bonuses at all as part of cost-cutting measures.
During this time, when standard operations may be disrupted, consider how you can utilize retained employees to work on organizational needs that previously may not have been addressed due to time constraints.
Some potential projects can include:
- Developing policies and procedures
- Identifying process improvements
- Preparing job descriptions and desk manuals
- Addressing physical improvements, such as small capital and operational
- Developing and providing training programs
These activities can help your organization perform more efficiently and effectively now and in the future, and strengthen your ability to handle potential future market downturns.
This period of disruption will prove challenging in many ways, but it can also provide the opportunity and experience to bolster your ability to weather subsequent economic obstacles.
Actions you can take to strengthen your operating environment for both the short- and long-term include:
- Business continuity planning to define essential and nonessential activities and resources and determine how you deal with disruptions to your operations
- Succession planning to define how to backfill each position, who should take over positions, and necessary steps to properly prepare individuals to step into new roles
- Operating reserves to support at least three months, but ideally more, of operations
- Bank relationships and plans to support operating needs such as a line of credit or loan
We’re Here to Help
To learn more about how your business can assess its challenging personnel decisions, contact your Moss Adams professional.