What is Layoff? | HR Glossary

What is a Layoff?

A Layoff is a temporary or permanent termination of employment. This can occur when a company is facing financial difficulties, a downturn in business, or a change in its organizational structure.

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Layoffs can also happen when there is a reduction in the need for a particular type of work or when a company is outsourcing some of its operations. Employees who are laid off may be eligible for severance pay, unemployment benefits, and other forms of assistance.

What are the different types of Layoff?

There are several different types of Layoff, including: HBR’s layoff and workforce reduction research

Temporary Layoff: This type of layoff is used when a company is facing short-term financial difficulties and needs to reduce its workforce temporarily. Employees are usually given notice and may be eligible for unemployment benefits during the layoff period.
Permanent Layoff: This type of layoff is used when a company is facing long-term financial difficulties and needs to permanently reduce its workforce. Employees are usually given notice and may be eligible for severance pay and unemployment benefits.
Mass Layoff: This type of layoff occurs when a large number of employees are laid off at the same time. It can happen due to a variety of reasons such as a downturn in business, a change in organizational structure, or outsourcing of operations.
Plant Closure Layoff: This type of layoff occurs when a company closes one of its facilities or plants and lays off all of the employees that work there.
Reduction in Force (RIF): This type of layoff is used when a company needs to reduce its workforce due to a decline in business or other factors. It’s done in a systematic way and usually based on specific criteria like job performance, seniority, and skills.

What are the causes and consequences of Layoffs?

The most common causes of Layoffs are a decrease in demand for a company’s products or services, financial difficulties, and changes in the industry or market. These factors can lead to a decrease in revenue and profits, making it necessary for the company to reduce its workforce in order to cut costs and stay afloat.

The consequences of Layoffs can be severe for both the employees who are laid off and the company. The employees may lose their income and benefits and may have difficulty finding new employment. They may also experience emotional and financial stress, and may have to relocate or make other significant life changes.

For the company, Layoffs can lead to a loss of skilled and experienced workers, lower productivity, and damage to the company’s reputation. It can also lead to lower morale and increased turnover among remaining employees.

In the long-term, Layoff can also lead to economic downturns, as laid-off employees may not have the disposable income to support businesses in the local area, and companies may not have the revenue to invest in new projects or expand their workforce.

SHRM’s layoff and RIF guidance

When organizations face workforce reductions, skills-based hiring practices and strong retention strategies minimize the talent impact of layoffs. Organizations using pre-employment assessments ensure every hire is grounded in verified skills. A data-driven hiring plan reduces mis-hire risk, while strong talent acquisition practices focused on skills-based hiring help organizations attract and retain top talent.

Frequently asked questions

A layoff is the termination of employment due to business reasons : not the employee’s performance or conduct. Common causes include economic downturns, budget cuts, organizational restructuring, technology-driven automation, plant closures, or mergers and acquisitions. Layoffs may be temporary (with recall rights) or permanent.

A firing (involuntary termination for cause) ends employment due to employee misconduct, poor performance, or policy violations. A layoff ends employment due to business need : the employee has done nothing wrong. This distinction affects: severance eligibility, unemployment insurance (laid-off employees typically qualify), COBRA eligibility, rehire consideration, and the nature of separation documentation.

Key requirements include: the WARN Act (Worker Adjustment and Retraining Notification Act), which requires 60 days’ advance notice for mass layoffs (50+ workers at a single site within 30 days) or plant closings affecting 100+ employees. Some states have mini-WARN laws with lower thresholds. COBRA continuation coverage must be offered. Ensure the RIF selection does not create disparate impact on protected classes.

Best practice process: finalize the business rationale and selection criteria, conduct legal review (disparate impact analysis), draft severance agreements and WARN notices if applicable, brief managers and HR on communication protocols, conduct individual notifications (never by email), provide severance and outplacement support, and communicate to remaining employees quickly and transparently.

Survivor syndrome refers to the psychological effects on employees who remain after layoffs : including guilt, anxiety, decreased morale, reduced trust in management, increased workload, and fear of future cuts. Studies show that poorly managed layoffs result in significant productivity losses among survivors. Transparent communication and manager support are critical to minimizing survivor syndrome.

Common severance package components: continuation of base salary (1-2 weeks per year of service is common), COBRA subsidy for health insurance continuation, outplacement services (resume/interview coaching), accelerated vesting of equity in some cases, and a separation agreement with mutual release of claims. Severance in exchange for a legal release must comply with ADEA requirements for workers 40+.