7 Steps To Prepare For A Layoff
I’m seeing layoff notices everywhere, how can I best prepare?
You're finally getting back on track with your finances. You're paying off debt, your savings are building, and you feel on top of the world. The next day at work, you hear rumors of a layoff,
You start thinking of every horror story you ever heard of someone laid off, and you feel stressed. How do you prepare for a layoff? Where do you start? What do you do?
As a prestep to prepare for a layoff familiarize yourself with the WARN act. This act requires certain employers (typically with 100+ employees and a few other requirements) to give 60-day notice to employees and state governments. before a mass layoff. It requires certain severance benefits for laid-off employees whose employers meet the Warn Act layoff criteria.
Websites like Warntracker and Layoffdata track notices of layoffs. Some state government websites list Warn reports of notices of future layoffs.
There's plenty you can do to prepare for a layoff, and with careful planning, you can turn what may feel like a setback into a transition into a new season of your life.
1. Prepare for a layoff by building your savings.
All other financial goals get put on hold when you prepare for a layoff. Your aggressive debt payment plan gets placed on hold, you go back to paying minimums and start saving. The money you were saving for your future vacation or home upgrade goes into your emergency savings account.
Save enough to cover at least 3 months of expenses. Ideally, you are not laid off, and you can continue your plans. The average length of time to find employment is about 6 weeks, longer during recessions.
2. Drastically decrease expenses to prepare for a layoff.
Consider creating two spending plans to help you prepare for a layoff. One spending plan is to account for how much money you need to maintain your current lifestyle. The second spending plan I call a Financial Crisis Plan is how much money you need to cover your basic expenses.
Your basic expenses are the "Quad of Stability"- food, shelter, transportation, and medical coverage. Knowing how much you need to make it through a loss of income gives you a realistic gauge of how long your savings will last. Review your spending plan and start slashing expenses such as premium cable, online subscriptions, etc.
3. Talk to your creditors to prepare for a layoff.
Even if you are paying your creditors on time, contact them to let them know about your potential layoff and ask about your options if you no longer have a paycheck. I've learned from experience that the earlier you contact your creditors, the more likely they are to work with you if later find yourself struggling to pay your bills.
Get the name of the department, oftentimes called the Hardship Department, you would need to call for help. Also, ask for their procedure — do you need to write a hardship letter, produce a budget, etc., to get help? This would also be a great time to ask for a reduced interest rate!
4. Understand your unemployment benefits.
Review your state’s unemployment benefits. Each state has its requirements, such as the length of time you'll receive benefits and your total benefit amount.
5. Use your employee benefits.
Did you miss your annual physical or dental checkup? Need glasses or contacts? While you are employed with a paycheck and an employer-subsidized healthcare plan, get every medical need taken care of.
Ask how your health insurance will be covered during a layoff. If married, ask your spouse’s employer requirements for switching to their healthcare plan and the costs. Research the healthcare marketplace if needed for replacement healthcare benefits.
Some employers will subsidize healthcare for a certain period, while others stop subsidizing on the last day of employment. You may be offered COBRA, a continuation of your healthcare coverage at your expense.
You can use your Health Savings Account, HSA, to pay for healthcare premiums when you are claiming unemployment.
6. Ask your HR department about what happens to other benefits when you leave.
If you are laid off with an outstanding 401k loan, find out how the loan balance is treated once you are laid off. Some employers allow you to keep making 401k loan payments, while others give you a certain period to repay the outstanding balance.
If you’re unable to repay the money within that period or fail to roll over the outstanding balance within a certain period, the remaining balance is considered a withdrawal and could be fully taxable. In addition, if you are under the age of 59 ½, you may have an additional 10% early withdrawal penalty (check for exceptions to paying the 10% penalty).
You don't have to make an immediate decision about your 401k plan. If you’re thinking about cashing out of your 401k plan consider consulting professional about the tax consequences or running an estimate of your tax liability so you don’t end up with a huge tax bill next tax season. The guidance is to consider rolling the money into an IRA or your next employer’s plan. Again, you don’t have to make this decision immediately.
If you have life insurance and/or long-term care through a workplace plan, find out if you can take those benefits with you and how much they may cost so you can factor the costs into your budget.
7. Prepare for job hunting.
Go on Linkedin and update your information. Research job opportunities and salaries. Dust off your resume and update it to include new skills. Take classes your employer offers to increase your job skills. Get copies of key documents such as performance records or work samples. Get the contact information of potential references. Revisit your old dreams and see if this is an opportunity to step into something great.
Honorable mentions if you are laid off:
Remember, your severance package is negotiable. Think about it, what do you have to lose for asking, you’re already losing your job?
Ask about equipment you can keep. Surprising some employer will allow you to keep your tech equipment. When I was laid off, I was surprised by how much they allowed me to keep.
Ask for a letter of reference stating that the layoff was a business vs. performance decision.
If asked, avoid the exit interview. If your emotions are high and your ability to filter what you say is low, your rant may be noted and put on file, possibly becoming a barrier to a future rehire. If you decide to do it, think twice about what you say- no matter how much the interview encourages you to be 100% honest- don’t.
Be cautious of anything you are asked to sign. Carefully review, if possible get a legal review so you are not signing away you’re right to work at another similar company, sue or anything else.
Be thoughtful about what you post on social media. Many employers look at social media. Your negative post may make your future employer fearful you’ll do the same to them.
if you get a lay off notice, call a friend, get out and do something enjoyable. Give yourself space to deal with the news emotionally. You have time to plan for tomorrow.
You don’t have to make ever decision immediately, like move your retirement plan. Take your time and beware of any financial professionally trying to force you into a decisison you’re not ready to make.
The more you prepare for the layoff, the less impactful the layoff will be on your finances. A little bit of preparation can go a long way.
