Managing Workforce Reductions with Strategy and Care

When it comes to operating and maintaining a business, companies of all sizes and across all industries—from farming to manufacturing—are facing tough decisions, including the possibility of workforce reductions. Whether driven by financial strain, restructuring, automation, or mergers, layoffs are never easy—but they can be managed with integrity, foresight, and fiscal responsibility.

How to Approach Workforce Reductions the Right Way

In the unfortunate event that a workforce reduction is on your horizon, here’s what you need to know to move forward responsibly:

1. Lay the Groundwork with a Strategic, Documented Plan

Before issuing termination notices, laying the groundwork with a well-documented strategy that aligns with your financial objectives and complies with all applicable labor laws is critical. Begin by establishing objective criteria for workforce reductions—such as role necessity, documented performance, or clearly defined business needs—while ensuring that decisions remain free from bias related to age, race, gender, or other protected classes.

Conduct a thorough impact analysis to determine which roles are essential post-layoff and how reductions may affect productivity or service levels. Plan for succession and workload redistribution so that remaining employees are supported and equipped. Finally, develop a transparent and respectful communication strategy—internally and externally—to protect the trust and reputation your organization has built. Engaging legal counsel and HR advisors during this stage can help mitigate legal risk and ensure the process is compliant and fair.

2. Understand Tax and Financial Implications

Because layoffs carry both immediate costs and long-term financial implications, they should be thoroughly evaluated well in advance. These decisions can ripple across your financial statements and tax filings, making it critical to collaborate with your accounting advisor early to ensure you’re considering the full picture and making informed, compliant choices.

Keep the following financial and tax factors in mind as you prepare:

• Severance Packages & Unused PTO Payouts: Severance pay is treated as taxable compensation and subject to payroll taxes. These amounts are typically deductible in the year paid but must be calculated and reported accurately. Many states also require employers to pay out accrued PTO, which is similarly subject to payroll taxes.
• Health Insurance Continuation (COBRA): While employers are not required to subsidize COBRA premiums, doing so can provide a short-term safety net for impacted employees and foster goodwill.
• Unemployment Insurance Impact: Laid-off employees may file unemployment claims, which can influence your future state unemployment insurance rates. Factor these potential increases into your cost projections.
• Employee Retention Tax Credit: Consult your advisor to determine whether any COVID-era tax credits still apply—or whether prior usage may impact current tax planning strategies.

3. Communicate Transparently and Humanely

How you deliver news of a layoff can shape morale, culture, and public perception long after the fact. Approach these conversations with empathy, clarity, and professionalism. Whenever possible, communicate the news in person—or via video for remote employees—to provide space for understanding and dignity. Be transparent about the reasons behind the decision, even if they are financial or strategic in nature. Provide written documentation outlining final pay, benefits, COBRA options, and severance terms.

When feasible, consider offering outplacement support—such as resume coaching, job search guidance, or referrals—as a way to show continued support and respect for departing team members.

4. Support Remaining Staff Through the Transition

The effects of a layoff don’t end with those exiting the organization. Remaining team members often face uncertainty, emotional stress, and increased workloads. Proactively supporting your workforce during this time is crucial for preserving morale, maintaining productivity, and preventing further turnover.

Hold team meetings to reinforce your company’s future vision and clarify any changes in roles and responsibilities. Promote access to employee assistance programs or mental health resources, if available. Support your managers, who are often responsible for driving performance while managing team sentiment. Equip them with the tools and recognition they need to lead with empathy and resilience.

5. Prepare for the Next Chapter—Stronger and Leaner

While difficult, layoffs can also offer a chance to reset and position your organization for future success. Use this transition as an opportunity to reassess your cost structure, revisit KPIs and staffing models, and realign your strategic priorities. Consider investing in cross-training, automation, or outsourced functions to improve efficiency and reduce reliance on headcount. Just as importantly, document what worked—and what didn’t—so you can apply those lessons to future planning.

Moving Forward with Confidence

Layoffs are never just financial—they affect individuals, teams, and your organization’s long-term trajectory. But when approached with foresight, empathy, and accountability, they can be navigated with professionalism and purpose.

If you have questions or need personalized guidance as you evaluate your next steps, contact your CRI advisor today. Our experienced team is here to support you through every stage of the transition and help you make informed decisions that protect your people and strengthen your business.