Top 5 reasons why companies lay off employees

Employees are an indispensable part of any organization, whether big or small. It is the power of employees that drives an organization forward toward its vision and mission. But, sometimes, due to various reasons, companies decide to lay off employees. Though it is an act that most organizations don’t prefer to do, sometimes, situations become so grave that they are left with no other option but to lay off their employees to control things. Employee layoff was pretty much common during the COVID pandemic.

According to a study done by Mckinsey in 2000, almost 65% companies faced layoffs between 2008 and 2011 during the times of global recession.

There could be numerous reasons behind layoff within a company and it’s extremely necessary for employees to stay aware of these reasons. By keeping themselves aware of these reasons, they would be in a better position to understand the background and stay ready for next job or explore fresh opportunities.

By decoding these reasons behind employee layoffs, people can easily control their emotions, thereby eliminating resentment and misunderstanding. Moreover, this would also offer a chance to you to determine your weak areas where you can work to experience growth in your career.

In this blog post, you will get to know the top 5 reasons why organizations lay off employees.

What does a layoff mean?

A layoff refers to a permanent or provisional sacking of an employee due to various reasons not associated with employee’s performance. In most cases, companies decide to curtail their workforce by adopting layoffs. For example, they might not be able to pay salaries to their employees or they encounter a reduction in overall sales.

There can be permanent or temporary layoffs given the exact reason behind them.

Financial Issues

One big and clear reason behind employee layoffs is financial downturn an organization faces. If a company is finding it difficult to manage its finances in a proper or profitable way, it is left with no other option but to reduce its workforce through layoff and continue business operations.  As salaries form a major element of business operations, managers and owners strive for a solution to control finances through layoffs.

There could be hundreds of factors that may trigger financial problems in an organization such as a decline in sales, heightened competition, excessive working overheads, outside economic slowdown etc. No matter what is the reason behind, every business strives to remain profitable and sometimes layoff appears to be an easy-going solution to control the situation.

However, mostly, organizations resort to temporary layoffs as financial turmoil is mainly temporary but if it persists longer, they may go with permanent layoffs.

Relocation

Relocation is another big reason why organizations resort to employee layoffs. Sometimes, businesses move to another city or state to see an increase in sales or meet their requirement. This is when layoffs become imminent as not everyone would be able to move to a different region.

Sometimes, organizations move to a new location or office to reduce their operation costs. This is when layoffs becomes a common phenomenon among businesses of all sizes and types.

Organizational Restructuring

Restructuring simply refers to a procedure that includes doing changes in a company’s structure for its overall performance and achievement of the said objectives.

This process is executed to make way for fresh roles and positions, wiping out older ones, and substituting obsolete functions with revised ones. There could be hundreds of reasons behind restructuring, however, its foremost objective is to smoothen business processes, enhance efficiency, and curtail cost.

Business Shutdown

If business owners decide to terminate the business processes completely, employee layoffs become necessary in all cases. When a company chooses to shut down its operations, it will usually undergo the process of settling down its processes and liquidating its possessions.

This process may involve selling off the machinery, properties, and other belongings. As employees are also an indispensable part of any business, they have been asked to relieve.

Mergers and Acquisitions

Merger simply refers to the combination of two organizations combine in a formal basis. There could be various reasons behind the merger of two companies – to expand their product/service offerings, reduce the tax liability, beat competition, and increase overall profits. Mostly, this may lead to the overlapping of job roles or duplicate processes between two companies.

To smoothen operations and wipe out role duplication, laying off a few employees becomes necessary. Since some processes may require a single person, there is no point in keeping two people for a single position.

Similarly, when one organization acquires the process of another organization by buying it, it is known as acquisition. This results in a change in leadership and business policies which can sometimes lead to employee layoffs. If new leadership decides to combine or replace some roles and job positions, some employees may be asked to leave. This can also be done to reduce working costs.

The Conclusion

In today’s dynamic corporate scenarios, employee layoff is no longer a foreign term or concept. And, for employees, it is necessary to know these reasons so that they can adapt to today’s fast-changing work environment. The idea of this post is to spread awareness about employee layoffs and propel positivity among today’s workers.