Over a third of SMEs are dealing with lay-offs in Australia: How do they manage offboarding?

Business risks, such as economic downturn and over-hiring during the pandemic, may be behind some of the recent job lay-offs in Australia. But how many companies use offboarding strategies to handle redundancies? Capterra interviewed over 1,000 workers to learn more about employee exit processes. 

Due to periods of rising interest rates, inflation and the risk of a recession, some SMEs may be vulnerable to the latest job lay-offs in Australia. Whilst some companies may implement a hiring freeze first, others may resort to letting staff go. But businesses may face challenges when managing an employee's departure, such as unfair dismissal claims and reputational damage. 

Offboarding processes can help with knowledge transfer between departing and remaining employees and potentially prevent legal risks and security breaches. HR tools can also be useful in an employee exit process and help with administrative work when terminating contracts. But do many Australian SMEs have an offboarding strategy in place?

For further insight into the reasons for SME lay-offs in Australia and how they are being handled, Capterra interviewed 1,376 employees working in the same companies in the last year. The full methodology is available at the end of this article.

Over a third of SME employees say their firms made job cuts in the last year

Globally, some companies may still be reeling from the after-effects of the pandemic and the need to reduce the workforce. Economic growth is predicted to slow due to high inflation rates, and the war in Ukraine may see companies planning for wider geopolitical risks. Whilst these are global business concerns, what is the outlook for SMEs in Australia?

Over a third of employees surveyed by Capterra (37%) said their company has made lay-offs in the last 12 months, whilst over half (54%) said there were no job cuts, and only 9% were unsure. Of the survey-takers who said their company has laid off employees in the last year, 38% said the rate at which staff are being let go has increased compared to the previous year. Only a quarter of respondents (25%) said it has decreased, whilst 30% said there has been no change. 

On average, SMEs with 101 to 250 employees had let go of the most staff (49%), followed by the second largest-sized businesses with 51 to 100 employees (43%). Smaller companies with 11 to 50 employees (38%) and two to 10 (22%) have made the least job cuts in the last year. 

Large businesses are perhaps more likely to make redundancies because they have the resources for employee severance pay. During an economic downturn, SMEs may need more financing or investors' support, making funding redundancies harder.

Telecoms employees report the most job cuts

SMEs in all sectors may face the tough decision of making job cuts to reduce operating costs. But which industries are being impacted the most by lay-offs? According to Capterra’s survey results, telecom SMEs have seen the most lay-offs in the last 12 months, with 80% of respondents reporting job cuts in their firms. 

This comes as no surprise with the biggest telecoms company, Telstra, making major redundancies in the earlier days of the pandemic. With the company working on implementing its T25 strategy by 2025, it may require further cost-cutting, which allegedly includes more job cuts. The telecom sector may be rethinking roles within areas, such as customer experience, loyalty, and technology positions, perhaps due to driving efficiencies with automation.

The marketing and communications sector (73%) experienced the second highest number of job cuts in Australian SMEs within the last year, according to respondents employed in this industry. Globally, there have also been a lot of lay-offs in tech companies, with the Australian marketplace no stranger as the IT/tech sector (52%) appeared third in the top industries with the biggest lay-offs. 

Since 2022, the global tech industry has been reducing its workforce, with big names like Twitter, Microsoft, and Paypal making lay-offs. The pandemic saw many companies rapidly digitalise and move online due to a surge in eCommerce. But post-pandemic, some consumers may be returning to their previous shopping behaviours. As a result of digitisation, many companies may be turning to automation or face competition from the use of Artificial Intelligence (AI) tools.

Cost-cutting is the top reason for lay-offs in the last 12 months 

For small businesses, the possibility of a recession can leave them concerned about reduced demand for their products and services and whether they can afford to retain their current workforce. Capterra asked respondents who reported job cuts within the last 12 months why their company had laid off employees, with the most common answer being 'cost-cutting' (48%). This was followed by a 'decrease in operations' (34%) and a 'decrease in funds' (22%). 

SMEs are less likely to have backup financial resources and may need to downsize to lower operation costs. But companies making job cuts to reduce costs ahead of a possible recession should consider future rehiring costs and first look for alternatives to lay-offs. According to tips from Gartner, companies can incorporate a voluntary reduction in employee hours, consider the four-day workweek, resort to hiring freezes, and encourage sabbaticals first, for example.

Importance of communicating lay-offs to employees

One of the vital ways to maintain employee morale during redundancies is effective communication in the workplace. 45% of survey-takers said their company communicates lay-offs to employees, whilst 38% said their employer doesn’t. Employees will likely appreciate honesty and receiving information directly from management rather than via hearsay.

Keeping employees regularly informed with redundancy updates is vital in maintaining employees' trust. According to survey-takers, companies that communicate lay-offs do so by 'personally informing direct reports' (61%) the most. This is followed by 'generic emails' (23%), ‘company-wide announcements at town halls/meetings’ (10%), and ‘newsletters’ (4%).

At least a quarter of SMEs don’t provide employee support with redundancies

When an employee leaves the company, it’s still important to support them during the exit process. It is vital to acknowledge the contributions the employee made while at the company to make them feel valued and appreciated. Showing empathy and transparency does not only benefit the departing worker, but it helps to build trust with remaining employees.

A fairly even distribution of survey-takers said they think their company supports employees being laid off (38%) compared to those who don’t (26%) and those who are unsure (36%). When asked what kind of support their company gives laid-off workers, ‘providing a reference letter’ (63%) was the most selected answer. This was closely followed by a ‘redundancy package’ (48%) and ‘support finding a new job’ (47%). 

A reference letter can support employees on their new career path and help them secure a position that complements their abilities and skillset. Ensuring the employee has a positive exit experience from the company also aids in their willingness to train their replacement. A handover plan and knowledge transfer are key to an offboarding strategy. 

40% of SMEs don’t use offboarding processes 

Offboarding should be considered as important as onboarding, as it will keep things running smoothly, especially during the handover between the employee leaving and the colleague taking over the responsibilities. Some key steps during an offboarding process include:

• Holding an exit interview
• Organising employee knowledge transfer
• Recovering company assets
• Revoking systems access
• Arranging final payments

Despite an offboarding strategy having benefits for SMEs, such as minimising the impact the departing employee has on the company, most employees (40%) surprisingly said their employer has not implemented one.

The majority of survey-takers whose company does have an offboarding strategy said their employer also sets up an exit interview (72%). This is compared to one in five who don’t (20%) and to 8% of survey-takers who are unsure whether their company does. An exit interview helps to assess the employee's experience in the company and identifies opportunities to improve retention. It can give insights into the business and, importantly, show employees their opinions matter. 

The role of upskilling in SME lay-offs 

In the event that an SME has to consider downsizing, upskilling employees can help prepare staff to cover current or future skill gaps in the company or within the job market if laid off. This can boost employee satisfaction and may encourage productivity. Upskilling can also increase the adaptability of both the employee and the organisation. For workers, it’s beneficial for career growth, and for SMEs, it can help them understand and adapt to current market conditions. 

According to employees surveyed by Capterra, over half (53%) said they have been upskilling within the last six months, whilst 29% of respondents have not upskilled but plan to learn additional skills. Whether employees have been offered the opportunity to upskill within their company or do it in their free time, SMEs should consider implementing training initiatives to help with retention rates and employee morale. 

When asked why they had been upskilling, survey-takers said it was 'to be better prepared for their job' (52%), for 'specific projects' (18%), and 'to be better prepared when looking for new jobs' (14%). Upskilling is important for personal development and can help staff gain more confidence in their skill sets. 

Some employees may want to improve or expand their knowledge and skills within their current role without intending to find a new job. For SMEs that have to downsize, giving employees support and flexibility in adapting to the changing job market can also help with morale. 

Key takeaway on SME lay-offs in Australia 

If SMEs face the tough decision to downsize, they should first evaluate other options, such as upskilling current staff to adapt to market changes, before deciding to implement job cuts. However, if companies have to make lay-offs, a well-thought-out offboarding strategy can help minimise disruption to operations and maintain morale amongst remaining employees who may have increased workloads. The process can also help avoid tarnishing the company’s reputation by showing it's a compassionate and responsible employer that supports staff facing redundancy.

In the next article in this two-part series, Capterra looks at the use of AI in HR to see whether the technology benefits SMEs, especially with lay-offs. Are Australian companies using it already? What are the ethical concerns among staff? We answer these questions and more.