5 Steps to Take When a Key Employee Leaves

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The departure of a key employee often comes as a blow, but with proper planning, you can ensure that it is just another stage in your growth. Take the following steps to ensure continuity in your business and to keep your investors, and other backers informed about how you will move forward.

Put a Back-Up Plan in Place

Ideally, you should always have a backup plan in place in case of sudden illnesses or other emergencies, but if a key employee hints at a departure or gives notice, you must immediately come up with a plan to have someone else handle his tasks. High-level managers and potential substitutes should understand every aspect of his role.

A large part of a succession plan is documentation. Everything each employee is working on should be part of a public manual, calendar, to-do list or file. This documentation should include contact information for outside parties as well as explanations on how Excel macros, computer programs or other shortcuts created by the employee work.

The plan should also include a clear list of priorities, so remaining employees aren't overwhelmed and know which tasks take precedence over their existing work.

Consider Information Security

Key employees often have access to bank accounts, important computer systems, and online services. While cases of intentional misconduct or theft of information are rare, it's still the best practice to remove their access as soon as they no longer need it.

In addition to removing access, you need to ensure that you retain it. For example, another employee may need to be given check-signing authority to maintain a two-signature check signing system. If the departing employee signed up for an online service, such as your website analytics, using company email, be sure to have him transfer the credentials.

Issue a Final Paycheck and Benefits

Departing employees are entitled to payment of their final paycheck and any accrued benefits, such as unused vacation days. Payments for accrued fringe benefits depend on your employment agreement and local laws.

State law also sets the timeline for making the payment. You generally have what would have been the regularly scheduled payday if the employee had stayed with your company. Many companies prefer to have departing employees sign for their final paycheck in person on their last day. Work with your bookkeeping services to calculate the final amount due.

Update Your Financial Statements

If an employee has already earned stock options or deferred compensation, the expense and accompanying liability is likely already recorded on your books. If the departure triggers a golden parachute or another contract term, the compensation due may only be a footnote — if it's included in your financial statements at all.

Rather than waiting until the next reporting period, have your bookkeeper immediately make the appropriate journal entries to reflect any financial transactions that occurred with the employee's departure. It gives you advance warning in case you need to explain or adjust for a shift in profits caused by any payouts.

Notify Investors

Most employees are considered replaceable, and their departures would unlikely be considered material to investment decisions. However, there are exceptions. One example would be the departure of a leading scientist whose departure would disrupt research considered central to his company's operations.

Regardless, as the best practice, you should send out a release notifying your investors about the departure of any key employee. This can help calm fears of turmoil or dissent within your ranks and prevent investors from considering pulling their backing. It's also a good way to keep investors informed about what's going on inside of your company and to let them know how you plan to grow going forward.