What Is the Difference Between a Voluntary Retirement and a Layoff?

March 23, 2018 by Josh Hrala

The need to rightsize an organization can arise from financial needs, a workforce planning initiative or countless other reasons. Normally, when a downsizing event is needed, many organizations turn to layoffs.

After all, layoffs are a simple procedure that many HR professionals are used to performing. However, layoffs can be detrimental to the organization as a whole if they are not handled with care because they can open your business up to lawsuits, a tarnished reputation, and many other side effects that you don’t want during a time when you’re trying to improve your bottom line.

Want to Start Your Own Incentive? Download Our Voluntary Retirement Guide

This is where voluntary retirement programs can come in handy. Instead of selecting individuals for a layoff using various methodologies, voluntary retirement packages allow individuals to choose to leave the organization, which makes the move a lot safer in terms of public opinion and how your outbound staff members feel about the situation.

The main differences between voluntary retirement and layoffs are as follows:

  • Layoffs take the control away from the staff members, meaning that HR and leadership are the ones to choose who is let go. Voluntary retirement allows staffers to step forward, electing to be let go
  • Voluntary retirement is generally seen as a benefit or incentive
  • Layoffs need outplacement support to make sure the staff member lands on their feet
  • Voluntary retirement gives the staff member the ability to get a new job while also pulling in a passive retirement income
  • Layoffs can happen to any staff member
  • Voluntary retirement incentives have requirements, usually involving age and tenure at a company

There are many more differences between voluntary retirement and layoff events, though these are the big ones.

In essence, voluntary retirement is a way to stave off layoffs, which can help your business overcome financial hardships without an event that can trigger the public to turn on you.

That being said, layoffs are typically the cheapest way to go because you do not have to extend a plethora of benefits to your exiting staff member. Instead, you can provide them with an outplacement provider to help them find a new role in an outside organization at a one-time cost.

The downside is that you lose out on transferring the knowledge your staffer have to whoever will have to take over their job responsibilities.

When it comes to knowledge transfer, an area of workforce planning that is sadly ignored most of the time, retirement plans are key because they allow you to prepare. It’s highly unlikely that someone getting laid off is going to be willing to work with your organization to ensure that you are doing well after you have basically turned their life upside down.

In the end, whichever choice your organization makes depends on your company’s needs, culture, and many other aspects.

Want to learn more about voluntary retirement? Check out our free guide here:

voluntary retirement

Josh Hrala

Josh Hrala

Josh is an HR journalist and ghostwriter who's been covering outplacement and offboarding for over six years. Before pivoting to the HR world, he was a science journalist whose work can be found in Popular Science, ScienceAlert, The Huffington Post, Cracked, Modern Notion, and more.

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