HR’s Role in a Recession

The prospect of a recession has many businesses and their employees worried. During an extended economic decline, sales drop, jobs disappear, and productivity decreases. Companies have less revenue to invest, and their customers have less money to spend. With their lives shaken by financial instability, people are more motivated to play it safe and less inclined to take risks.

We make no prediction about whether a recession is near. But with the possibility of one on the horizon and the inevitability of one eventually, everyone working in HR ought to be prepared when the time comes. A recession hits more than just your bank account. Stress grows. Tensions mount. Morale falls. People become less productive simply because they’re preoccupied with their personal finances. Each of these affect the bottom line.

HR’s role in a recession is to mitigate stress, resolve tensions, maintain morale, and ensure employees continue to be rewarded for their hard work. This is what HR should be doing all of the time, of course, but economic downturns come with their own challenges. Respect and empathy are key. Let’s look at a few of these challenges and what you can do in response.

Heightened Uncertainty About the Future

If a recession nears or begins in earnest, employees will be worried about how it might affect them. Will their pay be cut? Will they lose their job? Will their retirement savings evaporate? It’s difficult to plan or act when you don’t know what’s going to happen. For some people, waiting for the possibility of bad news induces as much anxiety as receiving that bad news.

Whether your business is booming or struggling, be as transparent as you can be. If your business looks poised to do well despite the overall downturn, deliver that message to employees. Give them that confidence. If navigating the recession will demand more efficient work from everyone, clearly communicate those goals, don’t sugarcoat the consequences if those goals aren’t met, and show your appreciation when they’re achieved. Whatever the case, don’t mislead employees. If you do, they’ll find out eventually and remember not to trust you in the future.

Employee Financial Hardships

A recession doesn’t hit everyone in a company the same way. Even if your organization fares well, the finances of your employees may not be so hot. Their 401(k)s may be tanking. An employee you just gave a raise to may still be worried about paying rent because their spouse or partner lost their job or their roommate had to move away.

Be mindful that your employees’ experiences during a recession will vary widely. Some may take bad news harder or feel less celebratory when there’s good news to share. Don’t assume that employee morale is high just because quarterly financials are on the rise. In times like these, empathy is invaluable. Keep a pulse on what your people are feeling. Point them in the direction of helpful resources.

Layoffs

Recessions sometimes lead to layoffs. A layoff occurs when you terminate the employment relationship because there’s no work available for the employee to do, the company can’t afford to pay for the work, or the company will completely close.

There’s no sense denying it: layoffs are stressful for everyone. That said, conducting layoffs poorly adds a lot of unnecessary stress, increases the chance of lost revenue, and may expose companies to liability. When considering and administering layoffs, keep the following in mind:

  • Learn about your compliance obligations regarding layoffs. The federal Worker Adjustment and Retraining Notification Act (WARN), which applies to employers with 100 or more full-time employees, requires 60 days’ notice before a mass layoff or business closing. Many states have their own versions (mini-WARNs) that kick in at a lower employee count, so be sure to check state law too. Your state unemployment insurance law may have notice requirements as well.
  • Be doubly sure that layoffs are absolutely necessary and that you’re letting the right number of people go. Layoffs mean less work gets done, period. Unless you’re shutting down, you need at least enough people remaining to keep the business running. Quickly rehiring people because you underestimated how much work needed to be done to stay afloat won’t inspire confidence and will likely lead to confusion around to shifting job duties.
  • Determine whether the layoff will be temporary or permanent. If you intend to rehire laid-off employees later, let the employees know and keep them apprised of developments or changes in your plans. You’ll be scrambling if you’re ready to rehire workers at some point and no one can or wants to return. Also, given the waiting times for unemployment insurance, being on-again, off-again with employees can seriously interfere with their income.
  • Be fair and non-discriminatory. Base your layoff decisions on legitimate business reasons and document those reasons.
  • Comply with laws regarding final pay. Many states require that you pay an employee much sooner than their next regular payday if they’re discharged or laid off. If your state law doesn’t address layoffs specifically, we recommend using the deadline that applies to terminations. If your state law doesn’t set a deadline for final paychecks at all, we recommend paying no later than the next regular payday.

Reduced Hours and Pay Cuts

In addition or as an alternative to layoffs, you might consider reducing hours or pay, but there are rules to follow here as well, and morale is sure to take a hit.

Employers generally have the right to reduce the number of hours an employee works. If you plan to send an employee home before the end of their shift, check state law for reporting time pay. Other restrictions may apply as well—review any contracts you have as well as relevant state or local laws. Exempt employees aren’t paid by the hour, so just reducing their hours won’t in itself lower their pay and save your company money.

If you still need a lot of work done, but can’t make the finances work, pay cuts may be your best bet. You can reduce the rate of pay of nonexempt employees as long as you keep it above the federal, state, and local minimum wages, still pay overtime when applicable, and don’t make the change retroactively.

You can also reduce the salary of exempt employees as long as they don’t fall below the federal and state minimum salary thresholds and, as with nonexempt employees, you don’t reduce the pay retroactively. In addition, to avoid violating the salary basis requirement for exempt employees, any change should be ongoing rather than fluctuating frequently. Federal law doesn’t require advance notice of pay reductions, but some states do, so be sure to check your state’s requirements.

If you need to reduce exempt employee pay below the minimum salary threshold, you’ll need to reclassify them as nonexempt, pay them at least the minimum wage and overtime as required by law, and provide them with any legally required breaks. Avoid reclassifying employees on a short-term basis, however, as it can look like you’re trying to avoid the rules.

As with layoffs, make your decisions regarding cuts to hours or pay in a fair and nondiscriminatory manner—and document, document, document.

Temptation to Cut Programs Deemed “Nonessential”

When money is tight, you must make sacrifices, but it’s important to remember your commitments and consider the consequences of casting them aside. For example, if an employer had committed to improving diversity, equity, and inclusion at their company, but then quickly opted to cut that program to help make ends meet, its employees would no doubt question whether that was ever truly a priority. All the work done as part of that effort could be jeopardized. The company’s reputation in the labor market could suffer.

Take care when deciding what programs and practices to stop. People assess an organization’s values based on where it spends (and doesn’t spend) money. What would your choices say about your values? Consider what message your actions will communicate.

If you really have no choice but to cut programs and practices that speak to your values and commitments, be thoughtful about how you communicate these decisions to employees. Transparency is key, as is following through again on these commitments when your company is back on its feet.

Everyone on Edge

Money problems weigh heavily on most people. Patience wears thin, the ability to collaborate with others deteriorates, and peaceful environments become high-pressure ones. In the event of a recession, you can expect people to lose their temper more quickly, long-standing conflicts to escalate, and new drama to erupt. However, don’t tolerate bad behavior.

Instead, address behavioral and performance issues right away, remind everyone that you’re all working for a common purpose, teach your team effective communication skills, and practice conflict resolution strategies. Ignoring drama or otherwise allowing it to fester will only hasten your best employees out the door.

Bottom Line

Recessions are difficult to go through and sometimes require hard choices. Treating people with respect and empathy sets everyone up for success in the long run.

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Leading During a Pandemic

No one knows what the workplace is going to look like in three months. COVID-19 continues to spread. School reopening and attendance plans remain tenuous. Further action from Congress is uncertain. Official rules from the Department of Labor might even be struck down in court, further adding to the confusion about what employers are supposed to be doing.

Leading an organization right now can feel like driving to a destination you’re not sure exists on a road that’s changing right before you.

In this situation, we need to accept that the typical ways of leading a team may not prove successful. The simple question of what success looks like right now isn’t easy to answer with either clarity or consistency. For instance, conventional wisdom around goal setting says that goals should be specific, measurable, attainable, relevant, and time-bound (SMART goals). But the pandemic has made it much more difficult to pin any of these down. Think of the movie studio executives attempting to calculate the risks of releasing a feature film on a streaming service instead of in movie theaters. Or grocery store employees trying to mandate mask-wearing and social distancing when some vocal customers don’t want to cooperate. What success looks like in these situations is not at all clear.

While it’s unlikely that leaders can bring true clarity and certainty to the present moment, there are leadership practices that can help promote the well-being of the organization and its people. We recommend the following:

  • First and foremost, ensure that employees are healthy and safe in the workplace. Stay up to date with the latest safety guidelines. Provide employees with adequate PPE, cleaning supplies, and safety training, and prioritize their health and safety when making business decisions. If your employees are doing fine working from home, don’t feel pressure to return them to the office just because that’s the way things used to be. If they want to take extra measures to protect themselves at work, allow it. If they suggest modifications that they feel will make everyone safer, seriously consider investing in those changes.
  • Enforce the rules. Employees desire and deserve safety (and OSHA requires it) and are looking to their leaders to create and maintain stability. Although you may have some “squeaky wheels” who are vocal about not wanting to follow the rules — whether that’s wearing a mask in the office or turning on their video for Zoom meetings — consistency will be essential to keeping the workplace both safe and orderly during these strange times. Enforcing company rules and policies, along with the rules of your state or locality, will increase both safety and overall trust in leadership.
  • Be compassionate and fair. The mental and physical stress of the pandemic is affecting people differently, so they may need different treatment. This doesn’t mean bending the safety rules for those who don’t like them or letting employees overlook basic online etiquette because they’re stressed out. It does, however, mean adjusting your expectations when employees are in a caregiving role, sick themselves, lonely, anxious, dealing with children who are home 24/7 for the foreseeable future, living with unruly pets, or all of the above. Productivity may be down, and it may stay that way for quite some time. If it’s any consolation, nearly every organization in the nation is dealing with the same issues right now. Even for companies whose profits are up, productivity, morale, and scheduling are a struggle. Good leaders will accept the situation and set about making it as workable as it can be for employees and the organization as a whole.
  • Focus on the overall mission of your organization. Analysis from Gallup indicates that people in a crisis look to their leaders for trust, compassion, stability, and hope. We’ve already talked about the first three, but don’t underestimate the need for hope right now. Do what you can to reach out proactively to employees and ensure they understand how their work is connected to the mission and success of the organization. Remind everyone of what you’re all doing and why you’re doing it. Hard numbers and specific projections are still important, but they may not be the most important thing to highlight at this time. Where numbers fail, knowing that at the end of the day (month, or year) your organizations will still be able to deliver a quality product or service that will make the lives of your clients and customers better can go a long way toward instilling hope. 

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Harassment Prevention Considerations with a Remote Workforce

Using video conferencing apps for meetings can make for a more productive and engaging time than group discussions over the phone, but there are also some risks to consider in regard to harassment prevention:

Attire

When working from home, the desire to work in comfortable clothes could tip from casual to inappropriate. You may have seen memes and stories about employees wearing professional tops without appropriate bottoms or family members dashing by too much in the buff. Fortunately, these wardrobe malfunctions are easily preventable with a little planning on the employee’s part. Remind them to plan ahead.

Backdrop

Ask that employees also take stock of what’s in their background before turning video on. Could there be inappropriate personal items or art that some might consider offensive? A number of video conferencing apps have virtual backgrounds that can eliminate both the threat of harassment as well as general distractions.

Video vs. Phone Call

Ensure that virtual meetings are scheduled equitably. For example, if a manager checks in with men on the team over the phone, but uses video for one-on-one meetings with the women, that would be a cause for concern.

Virtual Happy Hours

Both the use of alcohol and the act of communicating over a screen can decrease formality. Set expectations around respectful behavior and encourage employees to drink responsibly, if allowed, during happy hours. Remind employees that harassment and other conduct policies apply, just as they would at any other company-sponsored function.

Further Considerations Around Virtual Harassment

  • Handbook Policies: Review your company harassment and discrimination handbook policies and ensure they’re inclusive of, and applicable to, remote work and interactions.
  • National Origin and Race: An April 2020 Ipsos survey found that more than 30 percent of Americans have witnessed someone blaming Asian people for the coronavirus pandemic. The EEOC recently suggested that employers reduce harassment risk by clearly informing employees that fear of COVID-19 cannot be “misdirected against individuals” based on any protected characteristic, including national origin or race. Be alert for any discriminatory comments and be ready to act.
  • Age: Keep an ear out for jokes about employees’ age. A seemingly harmless barb about an older employee’s unfamiliarity with technology could result in a discrimination claim.

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Why Outsourcing Makes Good Business Sense

One of the biggest challenges facing business owners is the continued performance of necessary but non-strategic critical functions such as payroll, human resources and information technology.

Business owners know that running a successful business requires much more than expertise in their trade. Often the most difficult challenge in business is keeping the firm’s critical functions running smoothly, including:

  • Payroll,
  • Accounting,
  • Human resources,
  • Collections, and
  • IT.

Many of these functions come with numerous subfunctions. Human resources, for example, includes recruiting and retention, training, leave management, benefits planning and administration — not to mention an array of compliance responsibilities. All of these are labor-intensive activities where expertise matters. And that expertise frequently can be obtained in a more cost-effective manner by turning to external service providers.

The potential benefits of outsourcing go far beyond expertise, though. The primary draw for most firms is reduced costs, which come from a variety of sources. Vendors can pass on the benefits of economies of scale and high-capacity utilization. They may also wield superior negotiating leverage when it comes to dealing with third parties. They also provide access to best practices and the latest technology without incurring the normal capital costs.

If you outsource functions, your firm may see reduced overhead and staff costs, including employment taxes, paid time off, benefits, salary and wages. Moreover, unlike internal staff, outsourcing partners are paid only for work performed — you won’t have to compensate them for being on vacation or idle time sitting at their desks!

Selecting vendors for outsourced services requires careful consideration. Not every vendor will be able to provide the functions and level of service you require. Begin by soliciting referrals from other business owners. Pay special attention to the experience of firms that are comparable to yours in terms of size and geographic area. Ask about vendor customer service. How do they react when problems arise? Do they resolve issues satisfactorily?

Also, analyze vendor fees and cost structures. Do they have a complex fee structure? Do they have hidden fees? Can the vendor adapt in case you expand or downsize in the future?

Once you’ve selected a vendor, it’s important to maintain frequent communication with the vendor through implementation and then regularly throughout the course of your relationship.

As businesses continue searching for greater efficiency and lower costs, outsourcing arrangements not only promote savings but can also provide your firm with a competitive advantage. Regardless of size, your firm might find that outsourcing makes good business sense!

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