As entrepreneurs, one of the most difficult decisions we face is having to terminate employees. When an employee is being fired for poor performance, the decision is usually easier because poor performers can have a negative impact and they are probably not enjoying their job anyhow. What is more difficult is having to fire good employees for financial reasons.
A friend and current colleague of mine gave me some valuable advice, which I adapted to my own style and situation on a couple of occasions when cash was low and revenues were slow to come in: rather than firing employees outright, give them the option to reduce their workload to half time for a pre-determined, limited period. Tell them clearly that you value their work but are forced to do this for financial reasons. And give them a candid assessment of the situation, making it clear that unless things improve in the interim, they will be let go at the end of the half-time period.
Financially, your cost will be roughly the same: most employees get some sort of severance, even if it’s just two-weeks notice. You can double that period at half time, e.g., give them two months at half time instead of one-month severance, and your cash outlay is essentially the same. You may pay a bit more in benefits, but your cash outlay is spread out over a longer period. More importantly, this approach has several potential benefits for your employees and for your company.
For your employees:
- They can have an extended period during which they can look for work without the stigma of being unemployed.
- The half-time employment will give them plenty of time to look for work while maintaining a routine.
- They will be able to continue benefits for the extra time, something particularly valuable for anyone with a family.
For your company:
- In most cases, employees will continue to be productive at half time, whereas if you terminate them you will get no productivity.
- If you suddenly get that client you were hoping to get, you might be able to bring the employees back on – saving time and money from having to re-hire someone, and reducing the risk that you won’t be able to meet client demand.
- This approach can be much less disruptive to the employees you are keeping: especially if you are in a small company and laying off more than one person.
When I have had to go through this situation, I took the time to have one-on-one conversations with everyone in the company. First, I spoke with each of the people that we needed to cut. Then I spoke with everyone else to let them know that this was happening, that it was a transient phase, and that I counted on them to continue to contribute. Finally, we held a company meeting where we talked openly about the situation, to avoid the spread of rumors and panic.
The outcome was great: rather than spreading panic, everyone expressed appreciation for the way the situation was handled, and continued to be productive members of the team. Furthermore, some other employees volunteered to cut back to 4 days a week during the summer to give us even greater financial flexibility while enjoying a bit of time off.
The end of the story was even better: a few weeks later, we finally got a large contract. We were able to handle the client demand, restore one person to full-time, and extend the half-time work of others.
Paolo Gaudiano is founder of Infomous, which is trying to revolutionize the way users, publishers and advertisers interact with online content. He began his career in academia, reaching the position of tenured Associate Professor at Boston University. In 2001 he joined Icosystem, which spun off Infomous in 2011. Paolo holds a BS in Applied Mathematics, an MS in Aerospace Engineering and a PhD in Cognitive and Neural Systems.