7 Steps To Prepare For A Potential Layoff
December 19, 2017Editor’s note: This post has been updated to reflect current events due to the COVID-19 pandemic.
Of late, one of the biggest questions I have gotten from friends is, “how do I prepare for a layoff?” When I ask for the reason behind the question, they tell me of a friend or a relative that recently got laid off or worse, their company has had recent layoffs and has warned that there may be more.
If you find yourself in this position, I am sorry. A layoff or even the possibility of a layoff is scary. The good news is that there is a lot you can do in advance to prepare, just get started ASAP.
1. Get your savings account fat.
You may be aggressively attacking debt or saving for a vacation, but if you are facing the possibility of not having a paycheck, keeping a roof over your head and food on the table becomes your #1 goal. You may need to temporarily pay the minimums on debt, cancel upcoming vacations and focus all extra money on fattening your savings account. Best case, you don’t get laid off and you can resume your plans. Worst case you are in a better position to pay the bills while you look for work.
The average length of time to find employment is just over 6 weeks. This can be shorter or much longer depending on your career, industry, and location. Start saving enough to cover at least at least three months of expenses, with six being a reasonable stretch goal.
2. Get your spending plan skinny.
Trimming down your spending is the easiest way to create extra money that can go towards savings. Start with the things that you’ve had to go without during the shelter-in-place orders anyway: gym memberships, entertainment expenses, dining out and shopping. Create a “Basic Needs” budget to determine how much you need monthly to survive — this includes food, shelter, transportation, your creditors and possibly childcare while interviewing for a job.
3. Prep your creditors.
I have learned from experience that the earlier you contact your creditors about a hardship, the more likely they are to work with you if later find yourself struggling to pay your bills. Even if you are paying your creditors on time, contact them to let them know about the potential layoff and ask about your options if you no longer have a paycheck. This would also be a great time to ask for a reduced interest rate! Most businesses are offering increase flexibility around hardship procedures during the pandemic, but those rules could revert back to previous rules by the time you are out of work, so be clear on how long certain provisions are in effect.
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 have to write a hardship letter, produce a budget, etc. to get help? Then if you do find yourself pinched, you’ll already have a plan.
4. Understand your unemployment benefits.
Read up on the qualifications for unemployment, which typically have to do with your lack of employment not being your fault. Each state has its own requirements, length of time you will receive benefits and even benefit amounts. You can even estimate your potential payment. Knowing what you might receive can help you gauge how many months you can make it when you factor in your savings along with unemployment. As of right now, the federal government is supplementing all unemployment checks with $600 per week, regardless of previous income. This relief is in place through December 31, 2020.
5. Suck every benefit out of your job before you leave.
Missed 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 if you’re able.
If possible, also find out how your health insurance will be covered during a layoff. Some employers will subsidize healthcare for a certain period of time, while others stop subsidizing on the last day of employment. You may also be offered COBRA, a continuation of your healthcare coverage at your expense. Know that you can use your HSA to pay for healthcare premiums when you are claiming unemployment.
6. Find out what happens to other benefits when you leave.
If you have an outstanding 401k loan, find out how the loan is treated once you are laid off. Some employers allow you to keep paying, while others may give you a grace period, but require you to pay the balance rather quickly. If you’re unable to repay the money within that period of time, 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. Make a plan to avoid this, if at all possible, by brushing up on the temporary rules for hardship withdrawals that could help you avoid the penalty and even taxes.
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 that in to your budget.
7. Clean house.
Being laid off can be emotionally traumatizing. While you are in your right mind, get copies of key documents such as performance records or work samples. Get the contact information of potential references. Also, offer your information to fellow colleagues who may need to use you as a reference.
It’s also a good idea to find the contact information for payroll (you may have to request your W-2 or update your address if you move), the best HR contact for former employment verification and benefits contacts. If your layoff is imminent, start removing your personal items from your workplace.
I mentioned it before, but getting laid off can be a traumatic event. The more prepared you are for the layoff, the easier it will be to find a job and the less impactful the layoff will be on your finances. A little bit of preparation can go a long way.