Planning a reduction in force: the steps, the legal clocks and the cost

How do you plan a reduction in force?

Work backward from the legal clocks. First decide whether WARN notice applies, federally and in each state where affected people work: it can mean 60 or 90 days' notice. Then set the severance formula and the selection criteria, choose the people, and have counsel test the list for adverse impact by age. Prepare the releases with the 21 or 45-day consideration period and 7-day revocation period for anyone 40 or older. Budget every cost, line by line. Have outplacement running before notification day, so support starts the same day.

The steps in order

When	Step	Federal rule
90+ days before notice	Business case, headcount target, counsel engaged
Before selection	Severance formula and selection criteria in writing	No federal severance requirement
After selection, before notice	Adverse-impact review of the selection list	29 CFR 1607.4(D), four-fifths screen
60 days before separation	WARN notice to employees, the state and local government, if covered	29 U.S.C. 2102: 60 days
Notification day	Meetings, release packets, outplacement invitation	OWBPA: 45-day period starts with the final offer and group disclosure
Day 45 after the final offer	Last day to consider a group release	29 U.S.C. 626(f)(1)(F)(ii)
7 days after signing	Revocation period ends; release can take effect	29 U.S.C. 626(f)(1)(G)
Last day of work	Final pay, vacation payout where required, COBRA notice	State final-pay law; COBRA

Exhibit 1. Source: Federal statutes and regulations as cited. State laws can require more notice or faster final pay.

1. Does WARN notice apply?

Federal WARN covers employers with 100 or more full-time employees. It requires 60 days' written notice before a plant closing that ends 50 or more jobs at one site, or a mass layoff of 500 or more people at a site, or 50 to 499 if they're at least 33% of the site's full-time workforce. Several states have their own versions with lower thresholds or longer notice; New York and New Jersey require 90 days. Missing notice costs up to 60 days of back pay and benefits per person. Check it with the WARN calculator.

2. Severance formula and selection criteria, before names

Write down the severance formula by level and the criteria for selection (role elimination, skills, performance ratings with dates) before anyone is chosen, and apply them the same way to everyone. Most employers use a formula; in LHH's 2027 benchmark study (published October 2026) of 600 US leaders, 92% of organizations pay severance. Model the cost of different formulas with the total cost calculator, and test one person's package with the severance calculator.

3. Test the selection for adverse impact

Before notice, counsel compares the selection rates of people 40 and over with those under 40, and often by narrower age bands, race and sex. A common first screen is the four-fifths rule from the federal Uniform Guidelines on Employee Selection Procedures: a selection rate for a race, sex or ethnic group below four-fifths of the highest group's rate is generally regarded as evidence of adverse impact (29 CFR 1607.4(D)). The guidelines don't cover age, but counsel often runs the same comparison on age groups. It's a screen, not a safe harbor. The same data feeds the OWBPA disclosure in step 4, so both must agree.

4. Releases for employees 40 and over

A release that waives age claims needs at least 21 days to consider for one person, or 45 days in a group program, then 7 days to revoke. A group release must also disclose the decisional unit and the job titles and ages of everyone selected and not selected. See OWBPA release timelines for the dates and a calculator.

5. The total cost

Severance, pay in lieu of notice, vacation payout where state law requires it, employer payroll taxes on those payments, any COBRA premiums the company pays, and outplacement. Then the rise in your state unemployment tax rate over the next few years. On a 25-person example averaging $95,000 and 6 years of service, the total is about $28,000 per person. See the total cost of a reduction in force.

6. Notification day and after

• Final pay timing. Some states require final wages on the last day; California requires them immediately on a layoff.
• Benefits. COBRA election notices, and the date coverage ends.
• Outplacement live before the meeting, so each person leaves with a coach's name and the invitation goes to their personal email the same day. See engagement rates for what raises participation, program length for how long it should run, and outplacement for hourly employees for frontline teams.
• The people who stay. Tell them what changed and why, the same day.

Why the order matters

Support starts the moment people hear the news, and the first weeks decide how a search goes. In the Bureau of Labor Statistics' January 2026 survey, 66.1% of long-tenured workers displaced in 2023 to 2025 were working again, 72.9% of those aged 25 to 54 and 57.3% of those aged 55 to 64. Planning the release timeline, the payments and outplacement together means nobody waits on paperwork to get help.

For industry-specific issues, from visa holders in tech to union recall rights in manufacturing, see outplacement by industry. For what the people affected will be asking, see how long they have to sign a release and whether they got proper notice.

Sources

1. Legal Information Institute, Cornell Law School, 29 U.S.C. 2101-2109, Worker Adjustment and Retraining Notification Act, accessed Oct 30, 2026.
2. Legal Information Institute, Cornell Law School (eCFR text), 20 CFR Part 639, Worker Adjustment and Retraining Notification, accessed Oct 30, 2026.
3. Legal Information Institute, Cornell Law School, 29 U.S.C. 626(f), Waiver of rights or claims (Older Workers Benefit Protection Act), accessed Oct 30, 2026.
4. Legal Information Institute, Cornell Law School (eCFR text), 29 CFR 1607.4(D), Uniform Guidelines on Employee Selection Procedures: adverse impact and the four-fifths rule, accessed Oct 30, 2026.
5. US Bureau of Labor Statistics, Worker Displacement: 2023-2025, accessed Oct 30, 2026.