The math: how does this help an employer?
Assisting former employees can produce multiple financial benefits for the former employer:
Reduced unemployment tax: Companies pay unemployment taxes based on their experience rating, which is determined by the number of former employees who have filed claims. By helping employees transition to new roles, companies can potentially reduce the number of claims and lower their tax rates.
Minimizing litigation costs: Outplacement services can reduce the likelihood of wrongful termination lawsuits, which can be costly to defend and settle.
Preserving morale and productivity: When companies provide outplacement support, it can help maintain the morale and productivity of remaining employees, reducing the potential disruption and costs associated with turnover.
Recovering severance investments: In some cases, outplacement services can be more cost-effective than paying severance packages without support. By helping terminated employees find new roles quickly, companies can potentially recover some of the severance investment through reduced payments.
Case Study: HypothetiCo
Impacts:
Severance
Unemployment tax
Recruiting costs
Legal fees
Brand
Remaining employeers
Scenario 1:
HypothetiCo has a reduction in force that lays off 10 employees. They provide their former employees with access to a career coaching solution.
The company feels comfortable offering 1 week less severance per employee, saving $20,000.
Employees find jobs 2 weeks sooner on average, eliminating 20 weeks of unemployment claims and potentially saving $10,000.
Current and former employees continue to praise HypothetiCo, so they adopt top talent faster, saving $15,000 annually.
Terminated employees harbor no material ill will, so no lawsuits are filed.
The three client-facing former employees gracefully transition their relationships to remaining employees. There is no turnover.
The remaining team sees that their colleagues were supported through their career transition. Morale remains high and there is no productivity drop.
$45,000
Cost of services ($2,000 * 10 RIF’d) = $40,000
Savings: $5,000
Scenario 2:
HypothetiCo has a reduction in force that lays off 10 employees.
The company pays standard severance per employee.
Employees remain unemployed for 10 weeks on average.
Mixed reviews on sites like Glassdoor fail to attract elite talent or accelerate the pace of offer acceptance.
Two employees file wrongful termination suits. One is dismissed but required $3,000 in legal fees. The other is settled for $15,000.
Three employees badmouth HypothetiCo to customers on their way out, leading to a 10% drop in sales from their accounts worth $150,000.
Morale drops as the water cooler conversation amplifies and anxiety creeps in. HypothetiCo experiences a 3% productivity drop, costing them $100,000.