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Voluntary Layoffs
Voluntary Layoffs May Be On the Rise — Here's What to Know Before Accepting One
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AnnaMarie Houlis
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  • A voluntary layoff is when employees are offered a financial incentive to resign or retire their positions in order for a company to significantly cut down their workforce.
  • Employees have the decision to decline a voluntary severance package, but should still assume a major layoff or company change is underway. 
  • Before you agree to a voluntary layoff, consider how you'll spend your time between jobs, you finances and benefits, and your tenure at the company.

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You might have heard about Verizon's voluntary layoff in 2018. Verizon Communications Inc. offered voluntary severance packages to roughly 44,000 employees — that's more than a quarter of the New York-based carrier’s workforce. The employees who are eligible for the severance packages were offered three weeks’ pay for each year of service up to 60 weeks.

A Verizon (NYSE: VZ) spokesman confirmed the offer to The Wall Street Journal, explaining that the company was looking to cut its workforce as part of an ample effort to save itself $10 billion in costs and upgrade to the faster 5G network. The intent of the severance packages was to give Verizon “an opportunity to find more efficiencies in the size and scope of our V Team and help expedite the building of an innovative operating model for our future,” chief executive Hans Vestberg wrote in a memo sent to employees.

During the same day that the voluntary severances packages were announced, Verizon also dropped that they're being transferred to Indian outsourcing giant Infosys Ltd. as part of a $700 million outsourcing agreement, which affects about 30 percent of Verizon's 153,100 global employees, according to Biz Journals. And, as a result of that news, Verizon is transferring about 2,500 employees (who aren't eligible for severance payments, and won't receive their 2018 bonus if they're offered a job at Infosys and don't accept it) in the U.S. overseas to Infosys.

Inc.com's Geoffrey James had some choice words for Verizon employees offered severance: "You're probably wondering whether you should stay and hope for the best, or should you take the money and run. Stop wondering. Take the money. Tell your boss — today — that you want the severance package. Regardless of how long you've worked for the company, the money is a much better deal than what's coming down the pike."

But why was James so adamant about employees taking the severance packages and going? What does it mean to leave a job voluntarily, really?

What is a voluntary layoff?

What is a voluntary separation package? A voluntary severance package is "a financial incentive that’s offered to an employee in hopes that he will resign or retire," according to What Is. And, unlike most severance packages, a voluntary severance package gives the employee the option to indeed decline the offer.

Typically, voluntary separation packages are offered when they'll actually benefit the company by cutting back on the workforce and cost of salaries and benefits. For example, any long-term employees who earn high salaries and are close to retirement may actually be offered early retirement packages. And because the voluntary package benefits both the employer and the employee, in that case, it's sometimes referred to as a "golden handshake."

For others, however, it's not so golden, but rather, it could feel more like a forceful kick out the door. After all, a reduction in force (RIF), which is what happened at Verizon and many other companies, is defined as "a separation from employment due to lack of funds, lack of work, redesign or elimination of position(s) or reorganization, with no likelihood or expectation that the employee will be recalled because the position itself is eliminated," according to Vanderbilt.

What are the pros and cons of holding a voluntary layoff for a company?

When a company sees that they need to significantly cut down their workforce because of reasons that may be financial or otherwise (changing structure, relocating, etc.), they may benefit from holding a voluntary layoff, as opposed to laying off staff without employees' choice.

By offering a voluntary program, a company reduces its chances of getting hit with any lawsuits and having to pay unemployment. They also don't risk having their reputation tarnished quite as much, because they're looking to see if anyone wants to volunteer to go without having to forcefully pull the plug on anyone's careers.

"Voluntary layoffs also impact your surviving staff members, too — instead of holding a normal event, which can make people question their job security, a voluntary move allows only those ready to leave to make their exit," writes Career Minds' Josh Hrala. "If you hold an involuntary event, surviving staff members may start to resent your company and may jump ship later on, meaning that you went from a place where you had to let some people go to a place where no too many people have abandoned your company. This back and forth of having too many staff members and too little is bad for business because it costs a ton of money to onboard and offboard people."

The cons, however, are that employees may not choose to leave. While some might jump at the opportunity, the risk is always that not enough employees will volunteer to leave the company, and the company will ultimately have to do a traditional lay off down the line, anyway.

"While a properly planned and executed voluntary layoff incentive can save your company all of the downsides of an involuntary approach, you definitely run the risk of implementing the plan and not having enough staff members take the offer," writes Hrala. "There’s not much you can do here except make the plan as enticing as possible, but what do you do if you still can’t make ends meet after a voluntary program has expired? Chances are, involuntary layoffs will happen down the road... Where they fall down is when the offer is not accepted by enough people and the alternative is that there is still a forced reduction that comes after the voluntary period has passed. That, in turn, leaves those who didn’t accept the package, who get laid off later, with a smaller package, upset and not being long-term goodwill ambassadors of the company.”

So, if your company does offer you a voluntary separation incentive payment (also referred to as a buy-out), it's really nothing more than a lump-sum payment made to eligible employees who willingly choose to separate by resigning or retiring. The key point, however, is that it must be a voluntary decision.

When should you take the severance package?

Inc.com's James is so adamant that Verizon employees take the voluntary separation packages because he argues that voluntary layoffs "create an exodus of talent."

"The moment Verizon announced the package, the most talented people — the ones who have skills most in demand — immediately put out the word that they're available; they'll be hired quickly so, for them, the severance package is a sweet bonus," he says. "That's nice for them, but not nice for you (if you're not one of them) because companies tank when they lose a lot of talent. After all, it's the talented employees (and emphatically not the blowhards in top management) that have been keeping the company afloat, right?"

He also adds that further layoffs are inevitable.

"Since the top talent will soon disappear, the company will inevitably be in a weaker position after the layoffs — and since top management clearly thinks layoffs are a panacea rather than a sign of desperation, the layoffs will keep coming," he explains. "Layoffs are (or should be) like surgery. You want to cut everything that needs cutting as quickly as possible and get the patient into recovery. Starting with voluntary layoffs, however, is a sure sign that a company's unwitting strategy is 'death by a thousand cuts.'"

So when voluntary separation packages are offered, it's wise that employees seriously consider them.

When shouldn't you take the severance package?

There are several things to take into account before you do agree to take the severance package and leave. You might not be in the best position to voluntarily go. For example, you'll want to think about the following:

  • If you're being asked to retire early, have you saved enough retirement funds?
  • Do you have plans for how you'll spend your time now that you won't have a job if you choose to leave? How will that impact your mental health, if at all?
  • Do you have enough of a financial cushion to leave your job right now, even with the severance pay? Or will delaying your severance pay buy you time to build up your bank?
  • What is the likelihood that you'll actually lose your job? If you genuinely don't think your job is going to get cut next, is it worth it to leave?
  • How will the severance pay affect your taxes if you take it? Does the package include a lump sum payout? If so, will it bump you into a higher tax bracket? If so, can you negotiate a payout that stretches into the next fiscal year so you won't be impacted?
  • How old are you? If you're being asked to retire early, will the severance be enough to hold you over until you can withdraw from your IRA without facing any penalties?
  • What about your health insurance and other benefits? Will losing those negatively impact you if you choose to leave the company?

Answering the above questions should help give you a better idea of whether or not you should take the severance package and voluntarily leave the company. 

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AnnaMarie Houlis is a feminist, a freelance journalist and an adventure aficionado with an affinity for impulsive solo travel. She spends her days writing about women’s empowerment from around the world. You can follow her work on her blog, HerReport.org, and follow her journeys on Instagram @her_report, Twitter @herreport and Facebook.

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