There’s a lot of noise in the marketplace right now and this post is going to make a lot of people react negatively. But if you’re a small business owner and scrambling to cut costs and navigate the COVID-19 crisis, push through the negativity to see a potential path forward that may make sense for you.
At HelpFlow, we’ve been bringing together industry experts and business owners in a Town Hall format to share perspective on navigating the crisis. A few weeks ago, we started seeing experienced and disciplined business owners executing a layoff strategy that produced a good outcome for the business, the owners, and especially the employees.
In this post I’m going to explain why layoffs may be a win win win for everyone to get through this crisis.
Let’s get into it.
The COVID-19 Workforce Crisis Is Unique
When an economic crisis or recession hits, most small business owners focus on cutting external expenses heavily so that they can avoid layoffs and support their team. But they often end up having to lay off those same employees weeks later and end up going bankrupt because of that lost precious time trying to keep the employees afloat.
The COVID-19 workforce crisis is not a normal economic crisis. While the economy is not likely to recover anytime soon to pre-crisis levels, the name of the game for most business owners right now is to survive the next 90 days.
You may need to make significant business changes after the crisis, but for now you should be focusing on your short term strategy to navigate the next 90 days. Simply cutting external expenses and trying to float your team through this crisis is not going to cut it. You won’t make it through.
Layoffs Are Best For Employees And The Business
With that understanding that the name of the game is to make it through the next 90 days, let’s shift our focus to the actions the government is taking as part of this crisis.
The government is rolling out multiple programs to provide unemployment relief and also help businesses navigate this climate.
We’ll talk about the business programs in a moment, but for now let’s focus on the unemployment side.
- Many states have significantly expedited the time to get paid unemployment, sometimes even providing same week payments.
- Depending on the employee and the situation, unemployment usually provides 60 to 70% of wages for the employee.
- With shutdowns across so many industries, many small businesses won’t be able to get through the shutdowns so there is only so much time that the business can support employees with no income.
Why layoffs are a good path forward for the employees:
- Many small business owners are laying off large portions of their teams, helping their team members to collect unemployment quickly, and crossing your fingers that they will be able to bring these team members back at a later time when the crisis is averted.
- By focusing on layoffs first rather than small expense cuts, you are able to remove the majority of your business operational costs in workforce so that you can weather the next 90 days.
- If you instead focus on keeping your teams employed for as long as possible, you deplete much needed company resources, you will likely need to execute unemployment anyway within the next few months, and you risk the future of the entire business.
There might not be a business for anybody to come back to after the crisis if you don’t lay off early enough.
Businesses that don’t take action will get hurt even more in the comings weeks and months…
Businesses Can Be Bankrupted By New Laws
While the government’s focus on helping workers is noble and well intentioned, there are significant parts of new laws that are being passed and have already passed that have the potential to bankrupt your business if you don’t understand them.
This could put you in a position where executing layoffs even just a few weeks from now is significantly more expensive due to the new laws, or it could even put you in a position where you are not able to layoff staff at all until the business is bankrupt.
Let’s start with the governments business loan programs…
Government Business Loans Can Kill Your Business
The government is rapidly expanding how they provide small business administration loans and other funding for businesses to get through this crisis. The underwriting process is incredibly fast, with businesses applying on Monday, not being put through significant due diligence, and getting access to six figures of funds the same week.
Aside from the potential ramifications for abuse of the government funds that will come out in the weeks and months to come, let’s focus on a few key risks businesses have when they take on these loans.
- Personal guarantees- Most business loans from the government are personally guaranteed by the business owners. This means that if the loans are not enough to weather the crisis, the business owner is personally liable and will be financially ruined in addition to losing their business. In an economic climate like this, a large portion of businesses receiving these loans are going to get crushed.
- Loan terms can block layoffs- The government is also providing business loans that stipulate extremely negative terms for a business on when they can lay off employees. The specifics vary depending on a lot of factors, but this can put businesses in a situation where they are forced to spend down the loan to preserve the workforce and ultimately end up bankrupt at the end and facing personal financial ruin.
There has never been a time in history where the government has so quickly take an action to prop up the economy. I’m not saying what they are doing is wrong, but it’s incredibly important that you understand the specifics before you get involved.
It might be best to lose your business than to lose your entire personal financial life – that’s a tough choice.
The Government May Force You To Support Workers
Much of the government actions are focused on helping unemployed citizens that have been laid off and also employees that are in situations where their job is at risk.
Again, while the governments efforts are noble, the blunt of the impact of these programs is going to be taken by small businesses and many will be destroyed by them.
The most recent example as of the date of this article is the Families First Law that passed Wednesday, March 18 and goes into effect on Wednesday, April 1. Below are a few key focus areas of the law:
- More expensive to lay-off starting April 1- It will become much more expensive for small businesses to lay off their team in the form of added PTO, sick leave, etc. due at the time of layoffs.
- Forced sick leave- If your employees get sick, you can be forced to pay up to two weeks of sick leave. If another “individual” gets sick that they need to help, you are forced to pay an additional two weeks. And yes, at the time of this writing it’s written as “individual” – not family member, spouse, etc. That’s incredibly open ended.
- Forced 10+ ADDITIONAL weeks of childcare leave- If your employees’ children are stuck at home due to extensive school closures like much of the country, you can be forced to pay up to 10 weeks of leave.
- This applies to ALL businesses, even with 1 employee – Many HR laws with steep sick leave etc. reqiurements previously applied to businesses with 50+ employees. But the recent laws are being applied to any business under 500 employees (all the way down to 1 employee). Yes, there is vague wording about possible exemptions for small businesses… but you may not have the financial time to get exempted or battle legal claims against your company in the weeks and months ahead. The laws are vague, which is a risk for you as the business.
The law was goes into force April 1 and has some sections that are incredibly vague. The government will provide more guidance as time goes on, but the pattern in the government programs and legislation above should be clear. The small business owners which support the majority of the workforce in America will be forced to shoulder this cost.
* Because this is such a rapidly changing time of government regulation (day by day and week by week), consult with your HR specialists to understand specifics for your business and your state.
Avoiding Layoffs Is A Lose Lose
While you may initially think avoiding layoffs is the right move to protect your team, think about it from a slightly different angle.
- You are trying to protect their job and their income.
- You are trying to protect a source of that income which is your business.
- If your business goes bankrupt and you have to lay everybody off at some point in the next 90 days or longer, the employees will end up getting unemployment anyway.
- But your mismanagement of strategy during the crisis will have caused you to lose the business that you hoped to preserve for them, while likely leaving you in personal financial ruin.
This might come across harsh and possibly be over simplistic, but the point is this…
Laying off your employees now to weather the next 90 days puts you in a better position to have a business they can come back to after the crisis is over vs trying to pay them through the crisis.
Let the government help you, before it destroys you.
Keep Your Business Running Lean
Although proactive layoffs will enable your employees to be supported through this crisis, you will be left to figure out how to keep the business operational so it survives.
Some businesses are bound to attempt fraud of the system by putting a team on unemployment but asking them for continued operational support. Not only is this unethical, but you can be certain when the government slows throwing money around after this crisis, they’re going to shift our focus to auditing all those involved to make sure the rules were followed.
Hiring Temporary Remote Staffing Resources
You can leverage the fact that much of the world is facing a similar workforce displacement, which means you can hire temporary contract staff to replace your team and keep your business operating over the next 90 days. More importantly, you can leverage lower cost skilled labor from around the world to replace much of your team at a fraction of the cost.
Below are potential examples and rates for various types of remote team members:
- Back office administrative support- $8/hr
- Front office remote secretary support- $9/hr
- Specialized creative services- $9/hr
- Specialized professional services- $11/hr
Depending on the roles within your company, many of them can be managed by remote staff for around $10 per hour total (no additional taxes, fees, etc).
Not only will you benefit from having a team at a fraction of the cost, but you will also be able to be incredibly agile and not bound by the rapidly changing employment regulatory environment.
How To Get Your Staff In Place
You can hire team members through Remote staffing websites and other online job sites that cater to a global workforce. Searching Google will provide a wide range of potential resources, including Upwork etc.
But it’s also very important to consider that you do not have weeks or months to figure this out, and you are probably talking about replacing a big portion of your team with a remote workforce. The learning curve can be steep, and you don’t have time to get this wrong.
At HelpFlow, we’ve been running customer service solutions for hundreds of businesses for over five years. We have a fully remote workforce and experience operating remotely.
- We’re currently adapting our robust infrastructure / expertise and onboarding significant additional workforce resources to be able to help small businesses through this time.
- It’s our hope that we can help a large number of businesses get through this time by rapidly staffing key roles within their company with low cost remote staffing resources so they can weather the storm.
- Also, we’re providing the critical management process and execution / meeting routines to ensure that remote staff integrates quickly into business operations and collaborates effectively. This is often the hardest part of moving to a remote team structure.
To learn more about our remote staffing solutions to support the COVID-19 workforce crisis, review the details here.
What’s Next For Your Business?
These are scary times for small business owners and everyone else in the world. While we wish you and your family the best through all of this, it’s our hope that this post sparked ideas for you on how to weather the economic and social storm we are in.
I would encourage you to reach out to appropriate legal and human resource counsel for your state to evaluate your potential options. Regulations are vague, complex, and rapidly changing. None of the above is legal or human resource advice, so it is important information to spark your research.
Stay safe, stay sane.
Need Staffing Support to Get Through Temporary Covid19 Layoffs?
At HelpFlow, we’ve been running customer service solutions for hundreds of businesses for over five years. We have a fully remote workforce and experience operating remotely. We're repurposing our infrastructure, expertise, and access to significant workforce resources to help Small Businesses get through this difficult time.