Advantages And Disadvantages Of Layoffs

Advantages And Disadvantages Of Layoffs
Reading Time: 5 minutes

A layoff is terminating employments of your workforce for a temporary period or permanently. It depends on the extent of the crisis that the company is facing. There can be many reasons for layoff like downsizing, mergers, restructuring, slow economy. The firm decides to lay off to survive in the market. When there is a temporary suspension there is hope for employees to get their jobs back. Organisations call the staff back when they find the business in better conditions again. Usually, a layoff is done with permanent suspension. There is no hope that people will be re-joining. This happens when the management does not see any chances of getting back on track.

Many factors need to be considered while making a decision. There is immediate cost-cutting in this major. Yet this is not that easy as a reduced workforce also causes reduces output and this and more to the crisis. Seniority, performance, elimination of certain job roles are the criteria used for layoffs. Some firms may offer voluntary retirement to older employees. A layoff is a huge decision and should be well thought one. Below are a few advantages and disadvantages of layoffs at work to provide a wider picture.

Advantages of Layoff

The layoff is done in various ways according to the need and strategy that management finds right. The effect also depends on the method chosen for the process. Below we listed some layoff benefits. In general and considering various factors in the play.

  • Saves the Cost

A layoff is done when for some reason or another company finds itself in a financial crisis. Money is the most important aspect to keep any business running. There can be many ways to save the cost when the profits are not coming in as required. There are many expenses that an organization has to pay for. Some of these are very essential and cannot be cut down. To keep operating these few costs are unavoidable. For corporates, the cost of salaries and other benefits that the staff receives is huge. Cutting down the number of employees drastically saves the cost. This can be controlled internally. The layoff can be done to quickly save money.

  • Motivates Better Performance

When employees get to know that the company is going to lay off, it serves as negative motivation. Those who haven’t been giving their best till now, start working hard. The staff understands that the company will retain only high performers. They put effort to be among the top performers. Everyone understands the importance of better output here. The layoff also acts as negative motivation. It’s a fear of losing their job is that keeps pushing them forward. They have to maintain their performance to the best of their ability to make sure their job is secured. The efforts add to the productivity of the firm. This motivation is extended to improve the overall performance of the organization. It is evident that if the company does not survive the difficult phase, employees will lose their jobs.

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  • Layoff Based on Seniority

It is good to have the most experienced people in the company. This keeps not only the performance but also the wisdom and connections that they have developed over the years. The employees who are in the firm for a long time have a good understanding of the market. They very well understand the functions in the company with all the pros and cons. This can be utilized to raise the performance by improving the processes.

By retaining the older staff company gets to express loyalty towards them. This increases their commitment towards the work output. The people who are loyal to the company are also more trustworthy. This is also important for strong work relationships.

  • Layoff Based on Performance

The biggest advantage of using performance as a criterion is, it retains the best in the company. The workforce contains hard-working high performing individuals. Those who are with the company after lay off understand that they are valued. They also stay focused on not letting the performance drop. They get the motivation to do all they can to improve the situation. It is what exactly a company going through a difficult time needs. When the staff gives their best there is better output. It ups the odds of getting the firm to the profits again. Once the situation is restored for the good, the organisation still has the best with them. It avoids the anxiety of getting high-performing people onboard with urgency. This also cut down the cost of salaries and other benefits that are to be paid to relatively low-performing employees.

Disadvantages of Layoff

  • Extra Work for the Retained Employee

The responsibility of the required output falls on the shoulders of the remaining employees. As mostly the requirement is more than what the present number can produce, they have to do extra work. This means longer work hours. There is also an increase in the level of stress. There are a few to no breaks in the working hour plus there is fear of losing the job if they can’t do what is expected. Also a looming danger of the company shutting down completely. These conditions are also equally stressful for the people in the management. When it continues for a while, there is a danger of deterioration in the physical as well as mental health. This ultimately takes a toll on the quality of the output. With increasing health issues no one is likely to come up with initiatives. Stressed people can’t come up with ideas to improve the situation. All these effects collectively decrease the quality of output.

  • Lowers the Employee Morale

When the layoff happens, it’s tuff for those who had good work equations and friendships with the people who got terminated. There is stress in the environment in general. The office may suddenly feel like an alien space to them. Generally, there is no professional help is offered to people who are facing some issues. They struggle to build work dynamics with the other retained members who need to work as a team. It brings down their performance and their morale drops lower.

  • Makes Employees Feel Unvalued

The retained employee doesn’t always feel comfortable continue working with the company. There are higher expectations, stress, their acquaintances are gone. They fear losing their job in the future. There are always chances of more rounds of layoffs or shut down of the entire company. In this situation looking for another job make more sense. Many of these may leave the firm, and there will be even more shortage of workforce.

  • Damages the Image

A layoff is the last resort to save the company from a complete shutdown. For many, the layoff meaning is a major financial crisis for the firm. This keeps away the investors while it is the money that the organization needs the most. The layoff always has a huge impact on the employees. There are situations where higher management does not see any other options. The layoff also impacts the future hiring process when the company recovers. The candidate will always think twice before accepting an offer. They fear that if there is another financial crisis they are likely to suffer.

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There are many legal aspects when it comes to layoff. It has to be planned and done keeping all the regulations in the mind. It is not that simple to get a successful layoff if the company is not careful enough. The legal issues are what keep firms away from this option as long as they can survive. The layoff is something organizations do when there are financial problems. When something is done incorrectly the firm will get fines that they can’t afford.


Like any other huge decision, the layoff has both positive and negative impacts. The different type of criteria used has their advantage. The major advantage is that it can do huge cost-cutting in a shorter period. It keeps people putting in more effort than usual. The company gets to retain only high-performing or experienced people. The low output section can be completely closed down to decrease the losses.

It also has a downside as people stay overworked and get stressed. This causes health issues and impacts the output. Those who are retained may still not feel the job security or hate the new work environment. More people are likely to leave their jobs. Resulting in a bigger shortage of human resources, stress and overload to those who stay. There is difficulty in hiring and getting investors, as no one wants to work with a firm with an unsure future. Thus layoff should be done only as the last option. It should be well thought and planned decision to stay out of legal complications.

To stay updated with the latest HR trends, read our blogs here. 

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