How Does a Layoff Affect the Employer?

February 03, 2022 by Raymond Lee

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While the economy continues to pick up and job indicators improve, layoffs are still a necessary tool for businesses. Layoffs involve suspending or terminating employees from an organization. They can be temporary or permanent, and voluntary or involuntary depending on why they are happening. 

Layoffs happen when employers have to downsize or restructure their organizations to sustain their position in the market. To avoid being in the wrong standing with the law, employers must establish an apparent reason for laying off certain employees. Most companies cite profitability as the main reason for laying off employees.

A layoff might seem like the best option to the employer, but it can cause some ripple effects. It introduces missing links within teams, which might affect the employer in different ways. 

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This article highlights everything employers need to know about the impact of layoffs.

What Are the Consequences of Layoffs?

Laying off employees must be done with ultimate care. If an employer isn’t careful about each and every step, they could land in legal trouble. However, regardless of how well layoffs are planned, they often do impose some costs on firms.

Financial Costs

Employers often consider layoffs as an ideal way to boost the bottom line. However, it’s important to recognize that layoffs do have a financial cost to the organization. For example, the employer incurs severance and benefits continuance costs in the near term.

Other direct and indirect costs also come into play. In the long term, the implications of layoffs do involve some costs to the employer if the organization decides to rehire employees.

Layoff Survivor Stress

Layoffs can put affected employees in a severe predicament. While layoffs undoubtedly affect departing employees, they can also understandably cause surviving employees to feel uncomfortable and insecure about their job in the company. This can impact morale, and ultimately, the bottom line.

Alternatively, layoffs also introduce other changes in an organization. The layoff disrupts the status quo, where employees have to form new work relationships and look for ways to accomplish more work to make up for the laid-off employees.

Amid all the change, the employees might not realize that they are experiencing severe stress, which can lead to lower productivity and unhappiness at work.


Some employees have difficulty accepting and adapting to change, while others can relish it and see it as an opportunity.

However, layoffs often damage employee morale and increase the turnover intention of remaining employees. This is because they become uncertain about their future within the company. They may start considering job offers from other organizations or begin seeking new opportunities.

The Essential Guide to Layoffs

FAQs: Impact of Layoffs for Companies

In most instances, business leaders decide that layoffs are inevitable and the only way for the company to survive in the ever-evolving market. However, they cannot just announce the layoffs and expect the business to continue as usual.

Before making the decision, there are several things that you need to know. 

Does laying off an employee cost the employer?

If an employer is not careful about every step they take when laying off employees, they might land in some trouble. In most instances, legal problems, financial costs, and emotional distress are the main impacts of layoffs.

The legal woes that often follow come with a hefty fine, which may be a blow to the employer.

While layoffs might seem like a way to cut costs, the employer might incur more costs in the process. This is especially true when the impacted employees receive severance pay while the remaining employees get overtime wages.

The surviving employees might also suffer emotional distress, which leads to low productivity. In some cases, they start looking for new jobs because they might not be sure if they will survive if there’s another layoff.

Are layoffs good for business?

Besides the costs incurred, layoffs also have some positive implications for a business. One of the benefits of carrying out layoffs on a performance basis can be that only the high-performing and high-potential employees are retained. These employees will be successful in helping a company thrive in its operations post-layoff.

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Layoffs can also be good for a business, especially when facing financial trouble. It helps the business to save money and avoid further costs.

When to fire vs. lay off an employee?

Firing or laying off an employee depends on the situation at hand.

If your business is going through some financial problems or pursuing a different strategic path, you should lay off your employees, but not fire them. Legally, you have to communicate the layoff at least 60 days in advance. When laying off employees, you should consider offering severance benefits and help them with their job search, as well as by providing positive references.

Firing employees is an involuntary termination when an employee exhibits poor performance or commits misconduct that violates the law or company policy.

However, whether you are laying off or firing an employee, you should do so with the utmost compassion.

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Layoffs are a standard tool used by organizations striving to survive in the market and gain a competitive edge.

However, most companies experience higher costs, emotional distress, and increased turnover. Surviving employees experience increased workloads leading to increased stress and absenteeism. 

Therefore, it is essential to weigh all the possible options before laying off some of your employees. Also, consider how your company will operate with the missing links to avoid falling behind in the market.

And, in the event that a layoff is the best option for the company, partner with a contemporary outplacement firm to ease the stress of everyone involved in the layoff.

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Raymond Lee

Raymond Lee

Raymond Lee is the President of Careerminds, a global outplacement company based in Wilmington, Delaware. He has over 20 years of human resource, outplacement, and career consulting experience. He has his bachelor’s in psychology and holds a Master’s Degree in Industrial/Organizational Psychology from Louisiana Tech University. He is active in SHRM and ATD. Raymond’s been featured on SiriusXM Business Radio, CareerTalk, and the Wall Street Journal and he’s published a book titled, Clocking Out: A Stress-Free Guide to Career Transitions.

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