Voluntary Layoffs: What You Need to Know (Plus Policy Template)

Voluntary layoffs are a strategic alternative to traditional layoffs or job cuts. They offer employees the option to exit your company in exchange for incentives like severance pay or extended benefits. 

This type of workforce reduction—often called a voluntary separation, voluntary redundancy, or employee buyout—helps organizations cut costs with less disruption and legal risk.

In this guide, we’ll explain how voluntary layoffs work, what makes them beneficial for employees and employers, and how to effectively implement a clear voluntary separation policy for your organization.

A voluntary layoff is when an employee chooses to leave a company under a formal separation program. Voluntary layoffs are usually offered during a workforce reduction, allowing employees to step down with financial and career support rather than face an involuntary termination.

Voluntary vs. involuntary layoffs
Feature	Voluntary Layoff	Involuntary Layoff
Initiated by:	Employee	Employer
Participation:	Optional	Mandatory
Risk of legal action:	Lower	Higher
Morale impact:	Often positive	Often negative

If you’re planning an involuntary layoff, click below to download your free copy of our Careerminds layoff script guide. In five easy steps, we’ll help you handle the communication aspect of this challenging process with empathy and professionalism.

A voluntary layoff, or other similar voluntary termination, such as voluntary retirement, works by offering employees the option to leave the company with a benefits package, instead of being involuntarily laid off. It follows a structured process involving communication, application, and review. 

Here’s what a typical voluntary layoff process looks like:

• Assessment: The organization determines the need for workforce reduction.
• Eligibility criteria: HR outlines which departments or roles qualify for the program.
• Announcement: Employees are notified about the voluntary separation program.
• Application: Interested employees should apply within a defined window.
• Review and approval: Applications are reviewed based on criteria and business needs.
• Separation: Approved employees exit the company and receive agreed-upon benefits.

Voluntary layoffs give employees more control and cushioning during career transitions. They offer financial and emotional support, making job changes less stressful and more dignified. 

Here are the main benefits of voluntary layoffs for employees:

• Choice: Employees can opt out of uncertain work environments on their own terms.
• Support services: Offering outplacement services and coaching supports career shifts.
• Dignified exit: The program’s voluntary nature helps avoid the stigma of termination.
• Financial stability: Severance pay and continued benefits reduce economic pressure.

Speaking of severance pay, click below to download our free severance pay calculator. This tool will simplify the process by helping you calculate severance pay based on industry standards, employee tenure, company policies, and other key factors.

In many US states, workers who opt for a voluntary layoff can collect unemployment. Generally, such employees may be eligible for unemployment benefits if the voluntary layoff is part of a structured program and not a resignation without cause. 

However, this will depend on local laws. Check with your state’s labor department or legal advisor to confirm.

For employers, voluntary layoffs provide a strategic way to reduce workforce size while minimizing backlash. They preserve relationships, mitigate risks, and promote smoother transitions. 

Here are some key benefits of voluntary layoffs for employers:

• Reduced legal risk: Lower risk of discrimination or wrongful termination claims.
• Preserved morale: Remaining employees are less likely to feel targeted or anxious.
• Positive PR: Transparent, voluntary programs show respect for employees.
• Smoother transitions: Help avoid sudden disruptions with more strategic planning.

Voluntary layoffs should be implemented with clear communication, legal oversight, and thoughtful planning. Implementing a successful program involves planning and transparency, so you can reduce workforce size without creating confusion, resentment, or legal issues.

Here are the key steps to follow in implementing your voluntary separation program:

• Define goals: What are you trying to achieve (cost savings, department reduction, etc.)?
• Set eligibility: Identify who can participate (by department, tenure, etc.)
• Create a timeline: Clearly communicate deadlines for applying and exiting.
• Build the offer: Include severance, benefits extensions, and outplacement support.
• Announce the program: Send a company-wide message and host info sessions.
• Track participation: Monitor responses and make adjustments if needed.

A good voluntary separation policy outlines who is eligible, how the process works, and what support is provided. It’s a roadmap for HR, leadership, and staff during workforce transitions. Your policy should outline the program clearly, but don’t be too specific; leave the particulars for when you are announcing an actual voluntary layoff event to staff members. 

Here are the essential sections to include in your voluntary separation policy:

• Purpose: An overview of why the program exists and what it aims to accomplish.
• Definitions: Clarify terms like “reduction in force” and “voluntary layoff.”
• Procedure: What triggers the voluntary layoff event, how it works, and for how long.
• Applicability: List the specific groups or teams in the company that are eligible to apply.
• Eligibility: What makes someone eligible for the program, and how they should apply.
• Documentation: What forms will be used and how records will be maintained.

Below is our sample voluntary separation policy, which you can adapt to fit your organization’s situation and culture. Feel free to copy this template and customize it with your company’s specific information for your own needs.

Voluntary layoffs offer a practical and more humane solution to workforce reduction. For employers, they reduce legal risk and preserve their company reputation. For employees, they provide choice, support, and financial assistance during a career transition. 

When you design a thoughtful voluntary separation policy and ensure legal compliance, your organization will be closer to achieving its business goals while maintaining employee dignity and reducing stress.

If you need help navigating voluntary layoffs or any other event that can transform your workforce structure, reach out to Careerminds. Our resources, templates, guides, and industry-leading outplacement services will help you navigate those delicate processes more easily. Click below to connect with our experts and see if we’re the right partner for your organization.