How Layoffs Affect Your Tech Company’s Books and Payroll

Jun 7, 2023


In the grand scheme of things, layoffs can be a critical strategic move to help your company survive long-term. But if you’re in the middle of a round of layoffs or even considering them, it’s hard to get that high-level view. Layoffs are painful and can get complicated. You probably just want all of it to be over. 

Resist the temptation to rush through, though. For starters, if your company is big enough, you might be subject to the Worker Adjustment and Retraining Notification Act (WARN), which says that you need to give affected employees 60 days of notice. Plus, you probably want time to finesse your severance packages (if you’re offering them). And, of course, you can’t forget about how your layoffs impact your books and payroll.

While we can’t help you navigate everything a layoff means for your tech company, we can support you in that last bit. 


Why this matters now

Layoffs aren’t a particularly rosy subject matter, so why are we tackling it now? Because so many tech companies have made major slashes to their headcount in the last year. 

All the way back in October 2022, Peloton cut 2,000 people and Zillow let go of 300 while Fundbox laid off 42% of its employees. 

By November, layoff momentum had built to a steady clip, with layoffs of 200 at Oracle, 550 at Opendoor, 700 at Lyft, 1,000 at Stripe, 1,090 at Salesforce, and 1,250 at Doordash, paired with sweeping cuts of staggering proportions at Twitter (3,700), Cisco (4,100), Amazon (10,000) and Meta (11,000). And that was all just in November.

While most employers took a gracious break during the holiday season, layoffs picked right back up with the new year. By January 5, Salesforce and Amazon had cut another 8,000 employees each. In mid-January, Microsoft cut 10,000 employees while Capital One laid off 1,100. On January 20, Wayfair slashed 1,750 from their team, a number that pales in comparison to the 12,000 team members Alphabet parted with that day. By the end of the month, Spotify had cut 600, IBM 3,900, and SAP 3,000, while Workday, HubSpot, and Groupon all laid off roughly 500 employees each.  

Is your head spinning yet? The layoffs have continued through February and March. TechCrunch reports that so far this year, more than 120,000 tech employees have been laid off. In other words, if your tech company is considering layoffs, you’re certainly not alone. 

And if you’re in this boat, you should know what it means for your books and your payroll. 


Weighing a severance package

If you’re making layoffs to shrink your overhead, offering severance might be the last thing on your mind. Before you dismiss it altogether, though, think through what offering even a month or two of pay could do for your overall company. For starters, it reduces your risk of termination litigation. 

Also, severance can help with future recruitment efforts. Don’t underestimate the power of disgruntled employee reviews on LinkedIn and Glassdoor. The last thing you want is to have your company’s brand as an employer tanked by team members you were forced to lay off. With severance, you can soften the blow, helping former employees think more favorably about your company as they head out into the world and socialize with their peers. 

Finally, severance might incentivize employees to transition out over the timeline that works best for your company. If you’re shrinking your headcount, making sure responsibilities get properly handed off goes a long way. 

Ultimately, this all depends on whether or not your company can feasibly eat the cost of severance packages. Meet with your accountant to decide if it’s right for you. 


Special consideration for remote workers

If you plan to lay off remote workers, look at their location. As we reviewed in a recent blog, having an employee in another state establishes a tax nexus for your company there. If, after the layoffs, you will no longer have any employees in that state, you’re released from that nexus. 

Dissolving your business in that state means you don’t have ongoing tax liability or entity fees in that locale. This will mean more paperwork in the immediate future to close in the state, but it can simplify your books, taxes, and payroll in the long term. 


Issue final payroll

As you plan your layoffs, do your due diligence to look into the applicable last paycheck regulation. While there’s no overarching federal rule here, states have their own guidelines as far as when you need to issue a final paycheck to terminated employees. And remember, if you have an employee working remotely in another state, you might be subject to that state’s requirements, so check with both your home state and theirs. 

States that require employers to pay out the severed employees’ final paychecks immediately or by next-business-day include:

  • California
  • Colorado
  • Connecticut
  • Hawaii
  • Massachusetts
  • Minnesota (if the employee demands it)
  • Missouri
  • Montana
  • Nevada
  • Oregon
  • Utah
  • Washington, D.C.

If you and your employee live in any other state(s), you may have more time — but make sure you specifically look into the applicable regulation. Things may have changed since the writing of this blog. 

To be safe, many companies actively plan to have an employee’s final paycheck/direct deposit ready at the time of the layoff conversation. Being able to hand them that payment or immediately deposit it ensures that you’re meeting the requirements in the applicable state(s), protecting your company at a time when you’re likely already feeling somewhat vulnerable. 

Having a quality bookkeeping and accounting team around you can go a long way here. And, fortunately, they don’t have to add to your overhead. Hiring a CPA firm — especially one like ours that specializes in serving tech companies — can ensure you’re both aware of and compliant with the applicable tax and payroll laws. At the same time, they can help you strategically plan to maximize the chances that your layoffs put your company on the right path. 

All told, if you’re considering layoffs at your tech company, don’t hesitate to contact our team. We can help you navigate the potentially bumpy road ahead.