Reductions in Force are challenging for any business. To help leaders navigate the process, we sought advice from Newfront experts on key aspects of RIF planning and execution including Strategy, Compliance, Communications, and Employee Support.
January began with a bang. Time Magazine called it “an avalanche of layoffs”. Spotify, Google, Amazon, Microsoft, and Meta all announced large Reductions in Force (RIFs). The general response has been mixed. Many fear what it says about the broader economy. Some companies have been lauded for their handling of the RIF. Others have been fiercely criticized.
While responses vary, nearly everyone agrees that RIFs are complicated processes, where every aspect of the termination must be considered. “Make sure you remember: It’s all in the details,” Newfront Head of People Paige Maisonet explains.
To better illuminate some of the specific challenges of RIFs, we’ve spoken with four Newfront experts: Administrative Services Practice Lead Heather Yates on Strategy, Head of People Paige Maisonet on Employee Support, Chief Marketing Officer Bethany Hale on Internal and External Communications, and Lead Benefits Counsel Brian Gilmore on Compliance.
Strategy: Shore Up Your Selection Criteria
“The number one thing I advise clients that they need to be mindful of ahead of a RIF is their selection criteria,” Administrative Services Practice Lead Heather Yates says. “How are you going about identifying who is going to be part of RIF? And what are your reasons why?”
Yates says understanding and documenting your selection criteria is important for two fundamental reasons: to protect yourself legally and to be mindful of the humanity of both retained and exited employees.
Is your selection criteria seniority or performance or you are eliminating an entire division? Yates recommends creating a clear record of the reasons behind the decision. “Do you have documentation to support that less-than-stellar performance as your reason for selection? Are you eliminating a division or a certain type of role within the organization? And if so, are you documenting why?” Yates says. “If it's for financial reasons, are you documenting your financial position and how the RIF in this area or this division is going to support your financial goals?”
She explains that though you may never show this documentation to anyone, it’s useful to create it in the off-chance that a claim is made and you need to prove that the choices were non-discriminatory.
Additionally, the practice of carefully crafting your selection criteria allows you to be mindful of how you are managing the RIF process. Yates always advises leaders against the impulse not to explain the why of a RIF. “That just opens up your staff’s rumor mill and almost begs for worst-case-scenario thinking,” she says. Strategically, it’s a mistake to disregard the reputational effect of being unclear, unfair, or unkind during a RIF. “It's a small world. The way you treat people as they exit your organization is just as important as how you treat them when they're entering your organization,” she says. “Six months from now or a year from now when you're looking to onboard new staff, who's going to want to work for your organization if a close friend had their keycard turned off with no notice?”
Another challenge of conducting a RIF is coordination as you execute against the strategy. Multiple teams will be involved and need to be aligned. You’ll need to coordinate collaborative efforts across executive leadership, finance, marketing and PR, sales, IT, and other departments. Here confidentiality is critically important. Key leaders of each team need to be consulted to organize the execution both before and after the RIF takes place.
Communications: Proactively Own the Message
“There is no ‘flying under the radar with a RIF’ and hoping that the media won’t cover it or that clients won’t find out. They will. And, they will have questions you must prepare for,” Chief Marketing Officer Bethany Hale says. “Trying to keep it (or the people who were impacted) quiet is a mistake that will definitely backfire.”
Hale advises companies to craft an internal and external communication strategy ahead of a RIF. “Develop discrete messaging for key stakeholder audiences in addition to messages for those who are part of the departing group of employees,” she says.
Externally, focus on specific messaging crafted to speak directly to different groups, such as customers and prospective customers, business partners, investors, analysts, and the media. Obviously, each group will be reached through different channels, be it through an email from the CEO, a board meeting, a direct call to a partner, or another medium. But the key is to have a clear message for each that clarifies, calms, and reassures.
Internally, it’s important to craft a specific communication strategy for different parties as well: for executives, people leaders (both those who have team members impacted and those who do not), and remaining employees. It’s also worth thinking through the employee groups or even influential individuals who may have specific perspectives within the company, such as ERGs.
By being transparent and forthright with messaging, you can get ahead of the RIF and own the message. An empathetic email from the CEO to employees frames a RIF in a much different light than departing employees learning their fate by being locked out of their computers. “Authenticity, empathy, and clarity in comms are key,” Hale says. “Admit mistakes, take responsibility, show care and concern about the humans impacted; treat them with respect, kindness, and generosity.”
And while it’s an important first step to make an announcement to avoid blindsiding employees, the internal communications work does not end there. “Personal and one-on-one communications are really important,” Hale says. “You can make a big announcement via Zoom or email but it should always be followed up with person-to-person conversations within 24 hours of the announcement.”
The final internal stakeholder group to think about while crafting a communications plan is the remaining employees. “After a RIF, your top performers may get nervous about the stability of the company. It’s critical to have a comms plan to keep those individuals engaged,” Hale says. According to research by Visier, the people analytics software company, 7-8% of remaining employees leave or are recruited away after a RIF. Transparently explaining the why of the RIF is paramount for retaining top performers — let them understand the reasons the company needed to make cuts and how those cuts will help it succeed going forward. They are a motor for future success; make sure they’re ready to continue running at full throttle.
Finally, be prepared for all contingencies — whether that means a competitor trying to reframe the RIF publicly or backlash from outgoing employees. “In all likelihood, if you treat your outgoing employees with empathy, both mentally and financially, there will be no reputational damage to repair,” Hale says. “But it’s important to prepare for every possibility: how will you respond if disgruntled employees talk to the media? Or post negative messages on social media? Or begin to submit negative Glassdoor reviews?”
For Hale, there are four communication keys to remember during a RIF: be proactive, be transparent, be empathetic, and be prepared.
Employee Support: For Those Who Leave—and Those Who Stay
The first key to supporting both laid-off and retained employees during a RIF is transparency. “Give forewarning that it’s coming, explain the why, and be transparent about what challenges the business is up against,” Head of People Paige Maisonet says.
Though it’s frightening to be open about challenges as a business leader, letting employees in on the process protects your workforce from the whiplash of a surprise layoff and helps them understand what led to the decision.
From there, Maisonet stresses the importance of creating the space to process the RIF: both for the employees that are being let go and those that will remain with your company. “Truly, it’s so important to treat people like humans throughout the process. This is their livelihood. Show compassion and empathy to that experience,” Maisonet says. “And for employees that are remaining, there’s still the impact of losing a friend or a business partner that you collaborate with every day. Don’t forget that they’re affected too.”
Yates agrees. She advises taking concrete steps to make finding their next job as painless as possible for your laid-off employees. “For instance, helping employees with resume review and interview techniques can make such a difference during a RIF,” Yates says. “There are small steps you can take as employees are leaving your organization that will leave a lasting impact and show that you actually cared about them and about making their landing as soft as possible.”
Maisonet has also been impressed by companies that offer mental health services to employees who’ve lost their jobs and she’s seen the impact of facilitating smaller discussions for the employees who remain. A RIF is a moment when narratives are written about an employer: the scene of Google employees waiting for a red or green light that determined their fate as they swiped into the office creates the impression of an impersonal corporate giant that the company has spent years avoiding.
In contrast, a RIF where outgoing employees are supported mentally and financially and are even championed by executives in their job search can have a massive impact on a company’s reputation. Maisonet says the best bosses take the specifics of an individual’s journey — for example if they’re using company-funded healthcare for a fertility or family planning journey — when considering how to structure a severance. “The way it goes down is a moment when your company culture comes into sharp relief,” Maisonet says.
Compliance: Conquer the Complexity of COBRA
According to Lead Benefits Counsel Brian Gilmore, the compliance that is trickiest but should be front-of-mind for employers is the Continuation of Health Coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA). Gilmore explains the intricacies of the decision-making regarding COBRA Subsidies during a RIF:
“One aspect employers often consider in the RIF context is providing some form of a COBRA subsidy to assist employees and their families with the high cost of continuation coverage.
Once the employee is terminated as part of the RIF, there is generally no option to extend active coverage beyond the standard date coverage would terminate—which is typically either the date of termination of employment or the end of the month following termination of employment. In many cases, the employer would like to cover all or a part of the cost of COBRA for these individuals after active coverage ends. This could either be part of a severance package or a stand-alone subsidy arrangement.
The best practice approach for how to handle COBRA subsidies in a RIF will vary depending on the plan’s funding status.
For fully insured plans, there is no issue with offering to subsidize all or a portion of COBRA for some or all of the maximum coverage period. This is the most common approach because it is tax-free, and the ACA’s fully insured nondiscrimination rules have not yet been issued and therefore are not yet effective.
Directly subsidizing COBRA on a tax-free basis often is not a viable option for self-insured plans because of the §105(h) nondiscrimination rules. The COBRA subsidy would generally have to be available at the same level (in terms of amount and duration) for non-highly compensated employees to meet that standard. Employers typically offer greater-percentage or longer-duration subsidies to certain highly compensated employees.
If the IRS were to audit a self-insured health plan and find its arrangement to be discriminatory under §105(h), the highly compensated employee would be taxed on all or a portion of the benefits they received under the plan, referred to as the ‘excess reimbursement.’ This could be a significant tax liability depending on the amount and cost of services received.
Instead, the company can pay the employee some amount in standard taxable compensation that’s intended to cover all or a portion of the cost of COBRA. The employer has the option to gross up the former employee for the tax liability.”
For more information on COBRA:
Newfront is delivering deep insight into all aspects of the RIF process for its clients—from shaping the employee experience to modeling ways to contain costs without sacrificing value. As we face considerable economic headwinds in 2023, it’s a good time to reach out to your Newfront advisor to tackle the issues a downturn might present—before they tackle your business.
Meet the Experts
- Brian Gilmore, Vice President and Lead Benefits Counsel: Brian assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law. Connect with Brian on LinkedIn.
- Bethany Hale, Chief Marketing Officer: With more than 20 years of experience across marketing strategy, brand development, digital marketing, and demand generation, Bethany leads the marketing team at Newfront. She's a creative storyteller and thought leader who has worked with notable brands including IBM, American Express, Samsung Electronics, Hertz, and Microsoft. Connect with Bethany on LinkedIn.
- Paige Maisonet, Head of People: Paige (SHRM-CP) focuses on creating and maintaining the Newfront’s award-winning, employee-led culture by implementing innovative ideas to enhance organizational and leadership development. She founded the company’s Diversity, Equity & Inclusion Council and continues to lead belonging and inclusion efforts. Connect with Paige on LinkedIn.
- Heather Yates, Vice President and Administrative Services Practice Lead: Heather has nearly 20 years of experience in the human resources and payroll field. She also leads the Administrative Services practice. Connect with Heather on LinkedIn.
The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.
Share this article
Keep up to date with Newfront News and Events—