LAYOFF: Definition and Types

layoff
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People often mistake a layoff for retrenchment, but the two terms are not the same. While a layoff is volatile, retrenchment is not. Also, the duration of a layoff depends on its type. This article will show you how a layoff works, the different types of layoffs, and what you can do if you get laid off.

Definition of Layoff 

To lay off means to terminate or get rid of someone temporarily or permanently. This is typically done by a company/firm due to a business downturn in which there is insufficient work to be assigned to an employee who is registered with the institution and has not yet been retrenched. The types of layoffs include temporary and indefinite layoffs.

Employee benefits, such as salary or earnings, are terminated in a firm layoff. Employees who are laid off receive lay-off pay. As soon as the layoff is lifted, all of the laid-off employees should be reinstated in their previous positions. A layoff could be for one of the following reasons:

  • Raw material scarcity
  • Economic downturn
  • Machinery breakdown
  • Stock accumulation

Layoffs Explained

Layoffs generally affect groups of workers ranging from a few to thousands as a result of an employer’s cost-cutting efforts. An economic downturn or company restructuring may prompt this attempt. Such restructuring can be in the form of bankruptcy or a leveraged buyout by a private equity group

Layoffs are predictably unpopular among employees, regardless of whether they are referred to as “downsizing,” “rightsizing,” or “smart sizing.” Layoffs are often known as “workforce reductions” or “force reductions.”

Employees facing a late-career layoff may be given “early retirement,” which replaces a paycheck with retirement benefits. Companies wanting to avoid or reduce layoffs may also offer a buyout to longer-tenured employees as an enticement to depart voluntarily.

Employers may lay off workers even while their firms are booming. This is either to enhance earnings or because of a shift in markets served or operations.

Types Of Layoffs

The types of layoffs include temporary layoffs and indefinite layoffs.

Temporary Layoffs

  • Only career employees are affected.
  • The layoff term is less than four calendar months (120 days).
  • The employee is given a written notice outlining the effective date and projected duration of the termination.
  • The written notification is issued at least 15 days before the effective date, whenever possible. (The time length varies depending on the PPSM and/or collective bargaining agreements.)
  • There are no preferential rehire rights.

Indefinite Layoff

  • Only career employees are affected.
  • The layoff period exceeds four calendar months (120 days).
  • The employee has the option of recall, preferential rehire, and/or severance pay.

Layoff Vs Retrenchment

The primary difference between layoff and retrenchment is that layoff is dynamic in nature (workers are recalled after the layoff time is complete), whereas retrenchment is non-volatile (full and final termination of services).

The employer terminates the employment contract with the employees for three key reasons:

  • The firm is in a lean phase
  • Initial defective hiring
  • The employee exhibits deviant behavior, which affects the entire environment.

Layoffs, VRS, retrenchment, discharges, and other methods of involuntary separation are utilized. Many people believe that layoff and retrenchment are synonymous. However, this is not the case.

Definition of Retrenchment

Retrenchment is the process of reducing company expenses. When a company or firm implements retrenchment, it eliminates or reduces all unnecessary expenditures. This is usually done by reducing the variety of products or services offered and often by reducing the size of the company by closing down some of its offices. And this does not always imply a reduction in a company’s workforce.

It simply signifies the termination of staff services due to machine replacement or the closure of the unit due to a lack of product demand produced by the unit. During retrenchment, certain employees’ services are terminated, and they are sent home, with their link to the organization broken fully and immediately.

Key Differences Between Layoff and Retrenchment

  • The phrase “layoff” refers to the temporary termination of an employee at the request of the employer. Retrenchment is the involuntary separation of an employee owing to the substitution of labor by machines or the closure of the department.
  • A layoff is an action step, whereas retrenchment is a business strategy to cut a company’s expenses.
  • Layoff is defined in Section 2 (kkk) of the Industrial Disputes Act of 1947. Retrenchment, on the other hand, is specified in section 2 (oo) of the Industrial Disputes Act of 1947.
  • The layoff is of a temporary character. This means that it is for a set length of time, after which the employees are returned. Retrenchment, on the other hand, is of a permanent character.
  • Following the announcement of layoffs, the company’s operations cease due to a lack of raw materials, machinery breakdown, economic layoff, and so on. On the other hand, the company’s operations continue even after retrenchment is declared.
  • When the layoff term is over, the employees are reassigned to their old positions. In contrast to retrenchment, employees who are terminated are not rehired by the company.

Furloughs vs. Layoffs

A layoff differs from a furlough. In a furlough, workers are idled for a period of time due to plant repairs or another event necessitating a temporary work halt. Unlike laid-off employees, furloughed employees preserve their job titles and benefits with the prospect of someday returning to work.

Furloughs may also be imposed on government personnel. This can happen if legislators are unable to reach an agreement on the funding needed to pay their salaries. During a government shutdown, non-essential employees are often furloughed. However, essential employees may be required to work with pay delayed until a financial agreement is achieved.

Depending on their state’s eligibility standards, furloughed workers may be eligible for unemployment insurance benefits.

Read Also: HOW TO TERMINATE AN EMPLOYEE: Handling Termination of an Employee

Example of Mass Layoffs

Employers in the United States resorted to widespread layoffs during the early stages of the COVID-19 epidemic, when restrictions and infection fears halted travel, closed restaurants, and idled many other service businesses. According to the U.S. Bureau of Labor Statistics, employers in the United States shed more than 20 million jobs in April 2020 alone, and 22.4 million for a two-month period ending the same month (BLS).

To keep jobs, the US government established the Paycheck Protection Program. This program provided loans to businesses to cover payroll expenditures that would be repaid under certain conditions. During the epidemic, the initiative encouraged businesses not to lay off staff.

Statistics on Layoffs

Because financial market participants are most concerned with total employment, layoff numbers are often overlooked in favor of more recent monthly data on nonfarm payrolls and the unemployment rate.

The BLS’s monthly Job Openings and Labor Turnover Survey (JOLTS) gives a combined count of layoffs and discharges—involuntary separations from work, whether due to layoffs or for other reasons. In June 2022, the BLS reported a 170,000 decrease in layoffs and discharges to 1.2 million in April 2022, the lowest monthly total in series history dating back to December 2000. In April 2022, layoffs and discharges affected 0.8 percent of the labor force.

A monthly report on layoff announcements is published by Challenger, Gray & Christmas, Inc., a supplier of career outplacement services. It recorded 24,286 announced job layoffs by US firms in April 2022 and in May 2022, a 14 percent increase from March and a 6 percent increase from the previous year. Despite the increase, the approximately 80,000 job layoffs disclosed by companies during the first four months of 2022 were the fewest in the survey’s history, spanning back to 1993.

Why Employees Are Laid Off

The most common reason for layoffs is that the company needs to decrease costs in some way. This requirement could be caused by a number of factors. These include debts that must be paid off, a lack of revenues as a result of a reduction in sales, or the loss of a line of credit.

Who Usually Gets Laid Off?

Many companies will first lay off employees who have been with the company for the shortest period. If this describes you, there is nothing you can do to improve your circumstances.

Particular Considerations

While laid-off individuals endure the brunt of layoffs, losing earnings and benefits as well as the happiness, purpose, and sense of security that work can provide, large job losses can also harm remaining workers, their communities, the broader economy, and even their businesses.

Layoffs, for example, understandably upset even workers whose jobs are saved. Thus, heightening their worry and instability while decreasing productivity and morale.

Employee productivity losses as a result of layoffs might offset the cost savings from a layoff. Layoffs, according to some economic research, “are more costly than many organizations believe,” and businesses that reduce their personnel without making other changes are unlikely to experience long-term benefits.

Large layoffs can also cause economic harm in the area where the laid-off workers live by reducing demand for other goods and services and reducing tax income, especially if the area is reliant on a single firm or industry.

What Should You Do If You’ve Been Laid Off?

The first step following a layoff is to carefully analyze your employment contract, as well as any severance compensation offered by your previous employer. This may contain provisions for severance pay, employee benefits, and health insurance coverage. Employers may impose terms on severance agreements, such as not claiming unemployment insurance. Before signing any documentation, you should discuss your severance agreement and have an attorney examine it.

When You Are Laid Off, What Happens to Your Health Insurance?

If you are laid off at the end of the month, your employer will usually stop paying for your health insurance. Following that, the government COBRA program allows you to continue receiving insurance for a period of 18 to 36 months, subject to specified criteria. COBRA coverage is substantially more expensive than employer-provided health insurance, therefore it may be preferable to seek coverage through one of the Affordable Care Act plans.

How Long Can I File for Unemployment After Being Laid Off?

If you become unemployed, you should apply for unemployment insurance benefits as soon as possible, according to the United States Department of Labor. To be eligible for unemployment benefits, you must have been laid off or fired through no fault of your own, and you must meet specific wage and work standards, such as the length of time you worked at your former job. Additional regulations may apply in some states.

What Happens to My 401(k) After a Layoff?

You may be able to leave your 401(k) with your old company depending on its size. Transferring plan profits to a new workplace (if they have a similar plan) or into an Individual Retirement Account(IRA) may be a better option. It is critical to transfer the money directly across financial institutions rather than letting your former employer’s 401(k) plan administrator send you a check. Otherwise, you risk incurring an unnecessary tax liability.

In Conclusion,

Layoffs are a harsh but unavoidable reality of life in a competitive and trade-exposed market economy. A layoff can be emotionally and financially detrimental to the affected individuals, as well as their families, communities, colleagues, and other businesses. Unemployment insurance and retraining programs offered by the government can help the newly unemployed.

Layoff FAQs

What is a permanent layoff?

Permanent layoff refers to the indefinite termination of a working relationship between an employer and a worker that is initiated by the employer solely due to a lack of work for the worker to perform.

Can my employer lay me off without pay?

If you are laid off, you should be paid in full unless your contract states that your employer may lay you off without pay or on reduced pay. You may agree to amend your contract if it is not part of your employment contract.

Why is getting laid off good?

Following a layoff, you may be eligible for the following benefits: Payment for COBRA coverage to continue your medical, dental, or vision coverage while you are out of work. Job search aid, such as being sent to work with an outside agency that can assist you in finding a new position.

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