What is a Reduction in Force and How Does it Work?
This is one of the terms that strikes fear in the hearts of a great deal of employees.
When a company announces that there is going to be a reduction in force, the announcement is usually followed by lots of tension and uncertainty.
Everyone knows that someone is going to lose their jobs following the announcement.
Still, a lot of people do not know what exactly a reduction in force is.
In today’s article, we are going to take a look at reductions in force, what they are, how they differ from other tension inducing terms such as layoffs and furloughs, and why reductions in force are sometimes necessary.
WHAT IS A REDUCTION IN FORCE?
A reduction in force refers to a situation where the employer/company eliminates a portion of its employees permanently.
This could mean just one person losing their job or entire departments.
A reduction in force is usually abbreviated as RIF, which is often pronounced as “riff”.
Some even use it as a verb, as in “many of the people in sales were riffed”.
A reduction in force typically happens because of workforce planning initiatives, budgetary reasons, position eliminations, or other events that lead to right-sizing.
Put simply, a reduction in force is the process of reducing the company’s size by shedding staff. Other terminologies include downsizing and workforce reduction.
Factors that could lead to a reduction in force include technology, the economy, bankruptcy, sale of the company or mergers, overstaffing, relocation, plant closures, and slow sales or production.
Reduction in force is when the company enforces a permanent termination event where the likelihood of employees coming back to the company is low.
One reason for this permanency is that the position an employee held has also been eliminated in an effort to restructure or right-size the company as a whole.
The company eliminates positions so as to be smaller, tighter, more focused, with less wastage of resources.
It is about reducing expenses to match its current budget and maintaining a level of staff that is adequate enough to help the company meet its goals without blowing up expenses.
Another common cause of a reduction in force, besides financial reasons, is redundancies caused by a merger or acquisition.
TYPES OF REDUCTIONS IN FORCE
There are two types of RIFs: voluntary and involuntary.
- IRIF stands for involuntary reduction in force. This happens where the employee does not make a voluntary decision to leave the company. Instead, the decision on which employees will be shed off is made by the company’s management. Some companies will directly opt for an involuntary reduction in force, while others will turn to involuntary reductions of force when employees who have opted for a voluntary reduction in force do not meet the number of employees that the company is trying to shed.
- VRIF stands for voluntary reduction in force. This is where the employee himself makes the decision to leave the company. Such an employee can either decide to resign or take early retirement. In most cases, the company encourages employees to leave voluntarily by implying that a termination or layoff is definitely in the offing. The company can also offer an attractive severance or early retirement package to employees in certain departments as an incentive for the employees to leave on their own accord. However, the company is not under any obligation to accept an employee’s decision to volunteer for a VRIF.
HOW A REDUCTION IN FORCE DIFFERS FROM LAYOFFS AND FURLOUGHS
Very often, people use the terms “reduction in force,” “layoffs,” and “furloughs” interchangeable.
However, there is a difference between these three terms.
Layoffs are typically temporary – in theory that is. A layoff is defined as a temporarily suspension of employment for business reasons like downsizing or personnel management.
For instance, an employee may be laid off from a company because there is no longer enough work for him or her to do.
It implies that the employees who have been laid off will be recalled back once the economic situation has improved or once the company has successfully navigated whatever challenges necessitated the layoff. In practice, however, an employee who has been laid off might never be called back.
Typically, employees on unpaid layoff are able to collect unemployment benefits. The employer may even allow employees to maintain benefit coverage – this is done as an incentive to stay available for recall.
If laid off, however, it is wiser to assume you won’t be called back. In some cases, the employer can use the phrase “laid off” and say, “we will recall you when your job is available again” as an euphemism, a means to soften the blow.
You should, therefore, avoid being too optimistic and start looking for a new job or opportunity at once.
Not that many people today, including employers, know the correct meaning of the term layoff.
Actually, a lot of people believe that a layoff means permanent termination, probably owing to the number of employees who got laid off but never got called back.
However, a layoff basically means that there is the possibility of the employee being called back once the situation improves.
Reduction in Force
In the case of a RIF, an employee’s position is eliminated, and the employer has zero intention of replacing it.
This is therefore a permanent cut, and the employee will not be returning to the organization.
Despite this difference, there is a lot of confusion between the terms layoff and reduction in force.
For many people, the word “layoff” has come to mean what “reduction in force” means.
When people are told they are being laid off, they normally take it to mean that they are being let go permanently. In some cases, that is exactly what the employer means when uttering it.
Due to this ambiguity, most employees are bound to get nervous any time the company uses words like “restructuring” and “streamlining”.
These words do not necessarily mean someone is getting fired, but they also don’t mean someone won’t.
The ambiguity about whether an employer means “layoff” or “reduction in force” can be devastating for an employee who is not sure whether he will be eventually recalled (layoff) or if his position has been permanently terminated (reduction in force).
This state of limbo is uncomfortable and can prevent the employee from moving forward decisively.
Therefore, if you ever find yourself in a position where your employer has told you something vague which involves no longer being a part of the organization, make sure you ask what it means.
Ask for confirmation whether it is permanent.
This will give you closure, and enable you to move on to the next thing without hesitation.
A furlough refers to a situation where the employer enforces a mandatory time off work with no pay for employees. Unlike layoffs and reductions in force, a furlough is, without a doubt, temporary. Employees still have their jobs – only that they are not being paid.
However, there are employers who may opt to provide furlough pay or partially paid time off (PTO).
PTO involves employees getting paid for some days (for instance, two days) or get only a portion of what they usually make.
Some examples of employee furloughs include:
- 2 days off every month
- A week off every month
- One or two weeks off per month
- An indefinite time period
Implementing employee furloughs enables the company to reduce its expenses and save money. Furloughs may be caused by a lack of work in the business/season.
In layoffs, there is hope you might be recalled, but it is not certain.
Furloughs have more certainty that you will return to work, especially if furloughs are regular in your line of work, such as for those in seasonal businesses.
In a reduction in force, however, there is no shadow of doubt. You are definitely not coming back to work.
While a furlough is temporary and a reduction in force is a permanent termination, a layoff is somewhere in the middle, dependent on various factors. It could either be temporary or permanent.
For instance, if the business conditions improve, your employer might call you back, which makes the layoff temporary. If the business conditions do not improve, your employer might end up not calling you back, thereby turning the layoff into a permanent situation.
In any case, if your employer tells you are being laid off or being let go because of a reduction in force, start looking for a new job. The layoff might not actually be temporary.
HOW DO COMPANIES BENEFIT FROM A REDUCTION IN FORCE?
1. Money Savings
Paying people is one of the big expenditures in any company. When companies get too big, they can tend to overstaff.
For instance, you might find that some positions are unnecessary, others are redundant, and yet others the company can do without.
All these redundant positions cost the company money instead of bringing in money.
A reduction in force helps the company to reduce these redundancies. It cuts down the number of employees to the bare minimum.
This is great for the company’s financial health, particularly in bad times.
That is when the company needs to tighten up and ensure every penny it is spending is giving back value.
In other words, the reduction in force is a strategy that helps leave more money in the company’s hands.
The company can then direct these funds in the areas where it will produce the greatest impact.
When the company cuts down its workforce to those who are most crucial for continued success and growth, it instantly becomes a younger, fresher, more vibrant company.
Having too many employees makes a company bloated and slow. Such companies are unable to do things fast or efficiently.
With a smaller number of employees, the chain of command is shorter and so decisions are made faster and by a fewer number of people.
People who make decisions also tend to feel greater responsibility for their decisions when the company is smaller than when it is large.
In addition, people in a smaller company have a higher sense of personal responsibility that gets lost when working in a big corporation where everyone feels like they are only a small cog in the machine.
Compare startups to big corporations. Startups are generally more flexible and make quicker decisions.
As a result, they are able to try more things, make more creative mistakes, which leads to innovation and a courage to pioneer, do things differently.
In a world where disruption of entire industries has become the norm, flexibility has never been more important.
3. Keep Only the Best People
To use a sports metaphor, a team is only as good as its players. E
very coach knows this and every HR manager knows this.
No matter how good the coach is, or how good the strategy is, if the players aren’t world class, the team will not compete successfully against teams made up of world class players.
In a company, there are people who bring the biggest percentage of profits. These are the stars.
There are other people in the company who, though they don’t directly contribute as much to the profits, are equally essential because of a skill or quality they bring to the workplace.
Their presence or work is impactful and indirectly affects the company’s wellbeing.
When preparing for a reduction in force, the employer will determine who these employees are. Who can’t the company afford to lose?
The company then proceeds to cut everyone else, leaving only those who have the most to offer.
When the company has only the best people left, its competitive advantage automatically rises. For one, great people love to work in a workplace where excellence is valued.
If almost everyone in the organization is excellent, the company naturally develops a culture of excellence (without needing to write any memos).
Therefore, a reduction in force can be an opportunity for the company to do a drastic re-engineering of its culture, cutting off any toxic elements and emphasizing excellence and other qualities it values.
Ideally, the company will leave only those employees who reflect in their work and outlook the company’s vision or view of itself.
4. Opportunity to Change Strategy
Companies can get huge and unwieldy, unable to turn direction with ease or speed.
By the time a big company starts to respond to a threat or opportunity in the market, nimbler competitors are already ahead and capitalizing.
This explains why innovation, particularly in tech, seems to be a preserve of smaller companies, some of which start in garages.
A reduction in force can be an opportunity for the company to do some much needed self-reflection and determine what direction it will take going forward.
In many cases, the RIF is forced upon the company by forces beyond its control – usually financial problems.
In other words, the company is reducing its workforce because the old way of doing things is no longer working, no longer yielding great results.
A RIF presents an opportunity to find a better, new way.
When people are being let go, everything feels transitional, in flux. For a moment, people become receptive to change.
In contrast, when things are calm and normal, people will fiercely oppose change, sometimes even when it is beneficial to them. People instinctively dislike change because the unfamiliar is unsettling and likely to pose a hidden threat.
During a RIF, the entire company is receptive to new ideas.
This gives the management team a window of opportunity to introduce new changes in the company that will help give it a competitive edge in the market.
REDUCTION IN FORCE BEST PRACTICES
1. Training of Managers/Supervisors in Delivering the Message
As we established earlier, there is a lot of ambiguity and confusion about the terms used when one is being let go.
It is very important that the one who is delivering the message give it clearly, with zero ambiguity, while at the same time being polite and empathetic.
It is good to have a script that points out what needs to be said and guidelines that point out what should not be said.
If a manager or supervisor lets emotions interfere and gets personal or rude, the situation can turn ugly and could potentially burgeon into a legal situation, something the company does not want.
A script will anticipate the different responses an employee will have.
For instance, some of them could lose control of their emotions and cry or shout in anger.
The script will prepare the manager or supervisor for the different possible scenarios and give guidelines on how to handle each scenario.
If you are the messenger in this situation, remember that the one having a bad day here is the employee.
Sure, the company may be doing badly, but it’s the employee losing his/her source of livelihood.
Therefore, don’t get defensive and start to give explanations to the employee, trying to prove that the action is justified.
State the necessary with confidence. You don’t have to bring in the employee’s performance or past mistakes.
There is also no need of saying something like, “I know how you feel”. Simply be professional and sensitive, but firm.
2. Give the Employees Adequate Notice
Imagine waking up one day only to be told that you no longer have a job and that you should start packing your things immediately.
That can be humiliating and utterly devastating. You don’t want to put your employees through that.
Remember, a reduction in force is a purely objective exercise, based on a decision arrived at by top-level management over a period of time.
For that reason, a reduction in force should be as professional and humane as possible. In many cases, the people losing their jobs have not done anything wrong.
Some have worked at the company for decades. For them to lose their jobs in an instant is devastating.
The company should, therefore, give them adequate notice to ensure they have time to set their things in order and start looking for new jobs.
This is courtesy and really the least the company can do.
3. Mitigate Risk
As we have mentioned, the reduction in force can go awry and lead to a legal situation.
The employer must ensure everything done is above board, that no law is broken, or anything else that might lead to a lawsuit.
The employer should study the Work Adjustment and Retraining Notification (WARN) Act and ensure that they are in compliance.
The employer must also be very careful that the RIF does not appear discriminatory. For instance, it should not appear that the RIF has targeted a particular gender, age, race, or national origin exclusively.
A lawsuit could still happen, even when the employer does his/her best to mitigate risk. It is, therefore, important that the company documents everything, including why it is carrying out a reduction in force.
The company should not use the RIF as reason to terminate employees who are already viewed as a problem – those situations require different handling.
In addition, the company should not lay off more people than is necessary to attain its goal. It should also not hire new people for the positions eliminated by the RIF.
4. Don’t Ignore Remaining Employees
The company should practice positive change management leadership during this trying moment.
It should foster communication and give updates and clarity to the staff on the outcomes, what is expected of them going forward, and where the company is heading.
If the company fails to calm its panicking employees during this period, it may end up losing its best people as they might resign and take jobs elsewhere.
A sense of security is very important. People don’t want to have the threat of losing their jobs hanging over their head.
The business world is full of ups and downs, and regardless how good your company is performing today, or how promising the industry looks, things might turn around and get to a point where it becomes necessary for the company to undergo a reduction in force.
If the management starts using the term reduction in force, it means that some people are about to lose their jobs permanently, and you should therefore start preparing yourself for job hunting in case you happen to be part of those who are let go.
If you are an employer who has gotten to a point where you have to reduce your workforce, you should apply the best practices discussed above to soften the blow for your outgoing employees while at the same taking care to ensure that you don’t make your company open to unwanted and expensive lawsuits.
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