The importance of layoff preparation for your clients

Key Takeaways:

• To prepare for a layoff, your clients may want to build their emergency savings, continually review their budget and income, and foster relationships in their industry to build up their network.
• Once a client is laid off, some of the steps you can help them through will include applying for unemployment benefits, seeing if they qualify for COBRA, and relying on their network for potential job opportunities.

Layoffs can cause a significant amount of stress for your clients—no one wants to find themselves unemployed and worried about where their next paycheck will come from. But feeling prepared for a layoff can at least mitigate some of the fear and uncertainty that comes with losing a job.

In 2022 alone, there were 15.4 million layoffs in America¹ and large companies have been in the news for cutting back on their workforces. As layoffs are a topic of conversation due to the current economy and fears of a recession, today is a great time to help prep your clients for a layoff or future gaps in employment. These tips can help your clients set themselves up for success before and during a layoff:

Apply For Unemployment Benefits

One of the first things your clients should be thinking about after being laid off is applying for unemployment benefits. Many states have made it available to apply in person, on the phone, and online, so there may be a variety of options for your clients depending on where they live. USA.gov suggests using this tool to find out how to apply for unemployment benefits in your state, since the process will vary by location.

It’s also important to remind your clients that unemployment compensation is taxable income—so if they receive unemployment benefits, they’ll typically need to include payments in their income when they file a federal tax return. According to the IRS, some types of unemployment compensation are taxed differently based on the program paying the benefits,² so your client might want to utilize the variety of online tools on IRS.gov or reach out to a tax professional for guidance.

Review the Monthly Budget

Should your client find themselves laid off, they can review their monthly budget and see where to cut non-essential spending. This could mean canceling or pausing unnecessary monthly subscriptions, going out to eat less frequently, refinancing loans, etc. Where your clients feel comfortable tightening their budget will depend on their personal financial goals and values. But, in general, they should be able to find a few non-necessary expenses to cut.  And reviewing their monthly budget doesn’t have to come after a crisis such as a layoff—making a habit of reviewing and adjusting their monthly budget can help to achieve their financial goals.

Supplemental Income

In addition to cutting unnecessary spending, your clients may feel comfortable taking on a side job to build up their savings while still working at their full-time job. A side job could also be a backup source of income should a layoff happen. In today’s gig-economy, there are lots of options for people wanting to make supplemental income, such as freelance work in creative services, data entry, affiliate marketing, delivery and rideshare driving—the list goes on. Any marketable skill your client has could potentially be monetized. While this approach won’t work for everyone—many people do not have the mental or physical bandwidth to take on additional work—it can be an option for those wanting to build up savings more quickly than they would with only one source of income. And if your client does decide to take on additional work, they may want to consult a tax professional regarding extra income, which may need to be reported to the IRS depending on the amount.

Have Emergency Savings

Before a layoff occurs, having access to emergency savings is an important part of building financial security. When your client feels financially secure, they may feel more prepared for whatever life throws at them—including losing a job. An emergency fund will ideally cover a few months to a year’s worth of bills and necessities, which will depend on your client’s personal financial situation. Your clients should be able to cover all essentials like housing payments, utilities, groceries, gas, car payments, childcare, and any other necessary items via their emergency fund for an extended amount of time.

Your clients should also be made aware of the SECURE Act 2.0, which allows penalty-free access to retirement plan funds for certain emergency expenses and emergency situations. Saving for retirement doesn’t always mean tying up money that can’t be touched for decades. Many families struggle with the either/or choice of saving for possible short-term emergency spending needs or saving for their long-term financial future. When your clients feel secure with the cushion of an emergency fund, they can spend their time searching for a new job, rather than worrying about finances.

Health Insurance

Laid off employees may be able to continue receiving insurance benefits through the COBRA program. This will depend on the company—smaller companies won’t always qualify for the program. There are three requirements that must be met for your clients to qualify; their group health plan must be covered by COBRA, a qualifying event must occur (like a layoff) and they must be the qualified beneficiary for that event.³ If your client’s don’t qualify for COBRA, there may be options to purchase short-term health care through a private company or healthcare.gov, or utilize a spouse’s coverage. You can also access additional health insurance resources from Nationwide to share with your clients.

Networking

Another way your clients can prepare for a layoff is by making sure they’re engaging with their network before losing a job. Forming genuine connections and avoiding burning bridges with former employers and coworkers can pay off in the long run. When things take a turn and your client finds themself unemployed, relying on their network can help them find new opportunities. Just be sure to encourage them to pay it forward and help others in their network when they can as well.