Layoff

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A layoff [1] or downsizing is the temporary suspension or permanent termination of employment of an employee or, more commonly, a group of employees (collective layoff) [2] for business reasons, such as personnel management or downsizing (reducing the size of) an organization. Originally, layoff referred exclusively to a temporary interruption in work, or employment [3] but this has evolved to a permanent elimination of a position in both British and US English, [1] [ failed verification ] requiring the addition of "temporary" to specify the original meaning of the word. A layoff is not to be confused with wrongful termination. Laid off workers or displaced workers are workers who have lost or left their jobs because their employer has closed or moved, there was insufficient work for them to do, or their position or shift was abolished (Borbely, 2011). [4] [5] Downsizing in a company is defined to involve the reduction of employees in a workforce. Downsizing in companies became a popular practice in the 1980s and early 1990s as it was seen as a way to deliver better shareholder value as it helps to reduce the costs of employers (downsizing, 2015). Research on downsizing in the US, [6] UK, [7] [8] [9] and Japan [10] [11] suggests that downsizing is being regarded by management as one of the preferred routes to help declining organizations, cutting unnecessary costs, and improve organizational performance. [12] Usually a layoff occurs as a cost-cutting measure.

Contents

Terminology

Euphemisms are often used to "soften the blow" in the process of firing and being fired. [13] [14] The term "layoff" originally meant a temporary interruption in work [3] (and usually pay). The term became a euphemism for permanent termination of employment and now usually means that, requiring the addition of "temporary" to refer to the original meaning. Many other euphemisms have been coined for "(permanent) layoff", including "downsizing", "excess reduction", "rightsizing", "leveraging synergies", "delayering", "smartsizing", "redeployment", "workforce reduction", "workforce optimization", "simplification", "force shaping", "recussion", "manage out people", [15] "resource action", [16] and "reduction in force" (also called "RIF", especially in the government employment sector). "Mass layoff" is defined by the United States Department of Labor as 50 or more workers laid off from the same company around the same time. "Attrition" implies that positions will be eliminated as workers quit or retire. "Early retirement" means workers may quit now yet still remain eligible for their retirement benefits later.

"Redundancy" is a specific legal term in UK labour law with a definition in section 139 of the Employment Rights Act 1996: [17] see Redundancy in United Kingdom law.

When an employer is faced with work of a particular type ceasing or diminishing at a particular location, [18] it may be perceived[ by whom? ] as obfuscation. Firings imply misconduct or failure while layoffs imply economic forces beyond the employer's and employees' control, especially in the face of a recession.[ citation needed ]

Common abbreviations for reduction in force

RIF – A generic reduction in force, of undetermined method. Often pronounced like the word riff rather than spelled out. Sometimes used as a verb, as in "the employees were pretty heavily riffed".

eRIF – Layoff notice by email.

IRIF – Involuntary reduction in force – The employee(s) did not voluntarily choose to leave the company. This usually implies that the method of reduction involved either layoffs, firings, or both, but would not usually imply resignations or retirements. If the employee is fired rather than laid off, the term "with cause" may be appended to indicate that the separation was due to this employee's performance and/or behavior, rather than being financially motivated.

VRIF – Voluntary reduction in force – The employee(s) did play a role in choosing to leave the company, most likely through resignation or retirement. In some instances, a company may exert pressure on an employee to make this choice, perhaps by implying that a layoff or termination would otherwise be imminent, or by offering an attractive severance or early retirement package. Conversely, the company is not obliged to accept an employees decision and may not accept every employee who volunteers for a VRIF.

WFR – Work force reduction.

In the public sector

Following the recession of 2007–2008, the public sector has seen significantly smaller job growth in employment versus the private sector, and layoffs have been used to ensure sustainability. [19] As the public sector declines, the demand for services from the private sector declines as well. Layoffs in the public sector have put limitations on the growth rate of the private sector, inevitably burdening the entire flow of markets.[ citation needed ]

Unemployment compensation

The risk of being laid off varies depending on the workplace and country a person is working in. Unemployment compensation in any country or workplace typically has two main factors. The first factor of unemployment compensation depends on the distribution of unemployment benefits in a workplace outlined in an employee handbook. The second factor is the risk of inequality being conditioned upon the political regime type in the country an employee is working in. [20] The amount of compensation will usually depend on what level the employee holds in the company.

Packages may also vary if the employee is laid off, or voluntarily quits in the face of a layoff (VRIF). The method of separation may have an effect on a former employee's ability to collect whatever form of unemployment compensation might be available in their jurisdiction. In many U.S. states, workers who are laid off can file an unemployment claim and receive compensation. Depending on local or state laws, workers who leave voluntarily are generally ineligible to collect unemployment benefits, as are those who are fired for gross misconduct. Also, lay-offs due to a firm's moving production overseas may entitle one to increased re-training benefits. Some companies in the United States utilize Supplemental Unemployment Benefits. [21] Since they were first introduced by organized labor and the Department of Labor in the early 1950s, and first issued in a Revenue Ruling by the IRS in 1956, [22] SUB-Pay Plans have enabled employers to supplement the receipt of state unemployment insurance benefits for employees that experience an involuntary layoff. By establishing severance payments as SUB-Pay benefits, the payments are not considered wages for FICA, FUTA, and SUI tax purposes, and employee FICA tax. To qualify for SUB-Pay benefits, the participant must be eligible for state unemployment insurance benefits and the separation benefit must be paid on a periodic basis. There have also been increasing concerns about the organizational effectiveness of the post-downsized 'anorexic organization'. The benefits, which organizations claim to be seeking from downsizing, center on savings in labor costs, speedier decision making, better communication, reduced product development time, enhanced involvement of employees and greater responsiveness to customers (De Meuse et al. 1997, p. 168). However, some writers draw attention to the 'obsessive' pursuit of downsizing to the point of self-starvation marked by excessive cost-cutting, organ failure and extreme pathological fear of becoming inefficient. Hence 'trimming' and 'tightening belts' are the order of the day. [23]

Effects

Traditionally, layoffs directly affect the employee. However, the employee terminated is not alone in this. Layoffs affect the workplace environment and the economy as well as the employee. Layoffs have a widespread effect and the three main components of layoff effects are in the workplace, to the employee, and effects to the economy. One framework to examine the effects on the macro level is PSB, which examines the stakeholders perspective in global downsizing. This framework examines the global perspective of positive and negative stakeholders behavior during downsizing. [24]

Effects of layoffs in the workplace

Layoffs have remained the greatest way for a company to cut costs. Although from the employer's perspective a layoff is beneficial for the business, layoffs create an uncertainty in the workplace environment and lowers other employees' job security as well as creates an apprehension and fear of termination for the remaining employees, and subsequently lowers overall motivation in the workplace environment. According to Healing the Wounds: Overcoming the Trauma of Layoffs and Revitalizing Downsized Organizations, [25] in the post-layoff environment, there is a need for empathy, tangibility, self-knowledge, and relentlessly seeking customers among the surviving employees. The remaining employees may have feelings of survivors guilt. In order to diminish negative effects of layoffs, Wayne Cascio suggests alternative approaches to layoff and downsizing as "Responsible restructuring" approach. [26] Optimism is critical for rebuilding the workplace environment because employees look to their leaders for stability and predictability. No matter the position in an organization, employees will look for job security.

Effects of layoffs to the employee

Employees (or former employees in this case) can be affected in a couple of different ways. When an employee is laid off, his or her general trust in long-term work may decrease, reducing expectations upon rehire. After an employee withstands a layoff, the effects can trickle into future employment and attitudes. Layoffs in the workplace often leave the former employee less inclined to trust future employers which can lead to behavioral conflicts among co-workers and management. Despite new employers not being responsible for a prior circumstances, job performance may still be affected by prior layoffs. Many companies work to make layoffs as minimally burdensome to the employee. At times employers may layoff multiple people at once to soften the impact.

Effects of layoffs in the American economy

Layoffs create lower job security overall, and an increased competitiveness for available and opening positions. Layoffs have generally two major effects on the economy and stockholders. The way layoffs affect the economy varies from the industry that is doing the layoffs and the size of the layoff. If an industry that employs a majority of a region (freight in the northeast for example) suffers and has to lay employees off, there will be mass unemployment in an economically rich area. This can have leave ripple effects nationwide. Unemployment is the biggest effect on the economy that can come from layoffs.

Around the world

In francophone Belgium, the term Procédure Renault has become a synonym for the consultation process leading to mass redundancies, due to a controversial mass layoff and resultant legislation in the late 1990s. When an employee has been laid off in Australia their employer has to give them redundancy pay, which is also known as severance pay. The only time that a redundancy payment doesn't have to be paid is if an employee is casual, working for a small business or has worked for a business for less than twelve months. The redundancy compensation payment for employees depends on the length of time an employee has worked for an employer which excludes unpaid leave. If an employer can't afford the redundancy payment they are supposed to give their employee, once making them redundant, or they find their employee another job that is suitable for the employee. An employer is able to apply for a reduction in the amount of money they have to pay the employee they have made redundant. An employer can do this by applying to the Fair Work Commission for a redundancy payment reduction. [28] A layoff is also known as a retrenchment in (South African English). In the UK, permanent termination due to elimination of a position is usually called redundancy . [2] Certain countries (such as Belgium, Netherlands, Portugal, Spain, Italy, France and Germany), distinguish between leaving the company of one's own free will, in which case the person is not entitled to unemployment benefits, but may receive a onetime payment and leaving a company as part of a reduction in labour force size, in which case the person is entitled to them. A RIF reduces the number of positions, rather than laying off specific people, and is usually accompanied by internal redeployment.

Mass layoff

Department of Labor Worker Adjustment and Retraining Notification Act (WARN) requires employer "to provide at least 60 calendar days advance written notice of a plant closing and mass layoff affecting 50 or more employees". [29]

See also

Related Research Articles

Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any other entity, pays the other, the employee, in return for carrying out assigned work. Employees work in return for wages, which can be paid on the basis of an hourly rate, by piecework or an annual salary, depending on the type of work an employee does, the prevailing conditions of the sector and the bargaining power between the parties. Employees in some sectors may receive gratuities, bonus payments or stock options. In some types of employment, employees may receive benefits in addition to payment. Benefits may include health insurance, housing, disability insurance. Employment is typically governed by employment laws, organisation or legal contracts.

Unemployment benefits, also called unemployment insurance, unemployment payment, unemployment compensation, or simply unemployment, are payments made by authorized bodies to unemployed people. In the United States, benefits are funded by a compulsory governmental insurance system, not taxes on individual citizens. Depending on the jurisdiction and the status of the person, those sums may be small, covering only basic needs, or may compensate the lost time proportionally to the previous earned salary.

<span class="mw-page-title-main">Termination of employment</span> End of an existing relationship between an employee and their employer

Termination of employment or separation of employment is an employee's departure from a job and the end of an employee's duration with an employer. Termination may be voluntary on the employee's part, or it may be at the hands of the employer, often in the form of dismissal (firing) or a layoff. Dismissal or firing is usually thought to be the employee's fault, whereas a layoff is generally done for business reasons outside the employee's performance.

<span class="mw-page-title-main">Dismissal (employment)</span> Involuntary termination of employment

Dismissal is the termination of employment by an employer against the will of the employee. Though such a decision can be made by an employer for a variety of reasons, ranging from an economic downturn to performance-related problems on the part of the employee, being fired has a strong stigma in some cultures.

Permatemp is a U.S. term for a temporary employee who works for an extended period for a single staffing client. The word is a portmanteau of the words permanent and temporary.

Job security is the probability that an individual will keep their job; a job with a high level of security is such that a person with the job would have a small chance of losing it. Many factors threaten job security: globalization, outsourcing, downsizing, recession, and new technology, to name a few.

A severance package is pay and benefits that employees may be entitled to receive when they leave employment at a company unwillfully. In addition to their remaining regular pay, it may include some of the following:

<span class="mw-page-title-main">Worker Adjustment and Retraining Notification Act of 1988</span> United States labor law

The Worker Adjustment and Retraining Notification Act of 1988 is a U.S. labor law that protects employees, their families, and communities by requiring most employers with 100 or more employees to provide 60 calendar-day advance notification of planned closings and mass layoffs of employees. In 2001, there were about 2,000 mass layoffs and plant closures that were subject to WARN advance notice requirements and that affected about 660,000 employees.

In human resources, turnover is the act of replacing an employee with a new employee. Partings between organizations and employees may consist of termination, retirement, death, interagency transfers, and resignations. An organization’s turnover is measured as a percentage rate, which is referred to as its turnover rate. Turnover rate is the percentage of employees in a workforce that leave during a certain period of time. Organizations and industries as a whole measure their turnover rate during a fiscal or calendar year.

Paid time off, planned time off, or personal time off (PTO), is a policy in some employee handbooks that provides a bank of hours in which the employer pools sick days, vacation days, and personal days that allows employees to use as the need or desire arises. This policy pertains mainly to the United States, where there are no federal legal requirements for a minimum number of paid vacation days. Instead, U.S. companies determine the amount of paid time off that will be allotted to employees, while keeping in mind the payoff in recruiting and retaining employees.

A workplace is a location where someone works, for their employer or themselves, a place of employment. Such a place can range from a home office to a large office building or factory. For industrialized societies, the workplace is one of the most important social spaces other than the home, constituting "a central concept for several entities: the worker and [their] family, the employing organization, the customers of the organization, and the society as a whole". The development of new communication technologies has led to the development of the virtual workplace and remote work.

<span class="mw-page-title-main">Employment Relations Act 2000</span> Statute of the Parliament of New Zealand

The New Zealand Employment Relations Act 2000 is a statute of the Parliament of New Zealand. It was substantially amended by the Employment Relations Amendment Act 2001 and by the ERAA 2004.

Iowa Workforce Development is a government agency in the American state of Iowa, responsible for overseeing workplace safety, workers' compensation, unemployment insurance and job training services. It was formed in May 1996.

Iranian labor law describes the rules of employment in Iran. As a still developing country, Iran is considerably behind by international standards. It has failed to ratify the two basic Conventions of the International Labour Organization on freedom of association and collective bargaining, and one on abolition of child labor. Countries such as the US and India have also failed to ratify many of these Conventions and a mere 14 other Conventions, only 2 since the Islamic Revolution.

The Reform of Labor Laws in Spain was approved by the Congress of Deputies on September 9, 2010.

Short-time working or short time is a governmental unemployment insurance system in which private sector employees agree to or are forced to accept a reduction in working time and pay, with the state making up for all or part of the lost wages.

Compensation and benefits (C&B) is a sub-discipline of human resources, focused on employee compensation and benefits policy-making. While compensation and benefits are tangible, there are intangible rewards such as recognition, work-life and development. Combined, these are referred to as total rewards. The term "compensation and benefits" refers to the discipline as well as the rewards themselves.

Unemployment insurance, also known as 失業保険, is the "user pays" system of unemployment benefits that operates in Japan. It is paired with Workers' Accident Compensation Insurance and referred to collectively as Labour insurance. It is managed by Hello Work.

As the unemployed according to the art. 2 of the Ukrainian Law on Employment of Population are qualified citizens capable of work and of employable age, who, due to lack of a job, do not have any income or other earnings laid down by the law and are registered in the State Employment Center as looking for work, ready and able to start working. This definition also includes persons with disabilities who have not attained retirement age and are registered as seeking employment.

<span class="mw-page-title-main">Unemployment insurance in the United States</span> Overview of unemployment insurance in the United States

Unemployment insurance in the United States, colloquially referred to as unemployment benefits, refers to social insurance programs which replace a portion of wages for individuals during unemployment. The first unemployment insurance program in the U.S. was created in Wisconsin in 1932, and the federal Social Security Act of 1935 created programs nationwide that are administered by state governments. The constitutionality of the program was upheld by the Supreme Court in 1937.

References

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Further reading