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A layoff or curtailing is the temporary suspension or permanent termination of employment of an personnel or, more commonly, a group of personnel’s (collective layoff) for business reasons, such as personnel management or curtailing (reducing the size of) an organization. A layoff is not to be confused with wrongful termination. Laid off workers or displaced workers are workers who have lost or left their jobs because their employer has closed or moved, there was insufficient work for them to do, or their position or shift was abolished. Curtailing in a corporate is defined to involve the reduction of personnel’s in a workforce. Curtailing corporates became a popular practice in the 1980s & early 1990s as it was seen as a way to deliver better shareholder value as it helps to reduce the costs of employers. Research on curtailing in the US, UK, & Japan suggests that curtailing is being regarded by management as one of the preferred routes to help declining corporates, unnecessary costs reduction, and improve organizational performance. Usually a layoff occurs as a cost reduction measure.

There is huge impact of layoffs on life of personnel’s & employer even due to layoffs many personnel’s commit suicide because they are not able to handle instant financial pressure & social pressure, and even some personnel’s being in aggression let other personnel’s to left job and it runs the corporate & personnel’s into litigation. Layoffs also ruins the name of corporate in terms of share price goodwill job security & may run a corporate into loss making corporate. Due Layoffs market becomes unstable & market value of corporate also get impacted.

Why in News?

Recently, many of U.S. multinational corporates has announced massive layoffs, which already crossed 60,000 in September & October 2022.

A layoff is the temporary or permanent termination of employment by an employer for reasons unrelated to the personnel’s performance.

What are the Reasons for Layoffs?

Cost reduction is with talks of worldwide downturn, technology corporates, typically seen as big spenders, are now resorting to cost-reduction. Cost-reduction is one of the major cause for lay off because the corporates are not making enough profits to cover their expenses or because they need substantial extra cash to address paying off debt. Indian Start-ups have also look towards this trouble with media reports saying that more than 10000 personnel’s have been laid off by start-ups in mainly edtech & ecommerce sectors in 2022.

Fear of Economic Downturn: These corporates are apprehensive of potential economic downturn, with inflation soaring in most parts of the world. The International Monetary Fund has cited forecasts for worldwide Gross Domestic Product growth in both 2022 & 2023 as gloomy, given the pandemic & ongoing Russia-Ukraine Conflict.

Decreasing Dependence on Online Platform: During the pandemic, there was a surge in demand as people were in lockdown & they were spending a lot of time on the internet. The overall consumption saw an upsurge following which the corporates went to increase their output to meet the market requirements. In order to meet the demands, many tech corporates went on a hiring spree anticipating the boom to continue even after the pandemic. However, as the curbs were eased & people started stepping out of their homes, consumption fell, resulting in heavy losses to these big tech corporates. Some of these resources were hired at a higher cost because of the sudden upsurge in demand.

What is the Outlook for the Indian Corporates?

The Indian IT services firms are among the largest employers in the organised sector and any worldwide economic trend is bound to have an impact on their growth projections. Administration look at headcount numbers critically when they want to cut costs & protect profit margins as they are accountable to investors. Though there isn’t a discernible trend yet, there are a few signs which may signal what is to be expected in the next few months. All top corporates except Wipro saw a rise in revenue & net profit. Wipro’s net profit slid 9% from a year earlier for the quarter ended September. The attrition rates, or the number of personnel’s per 100 quitting on their own, of the top two firms, TCS & Infosys, show that these rates are still high, which means that there is enough business for the sector for competitors to draw away personnel’s with promise of higher salaries. News of layoffs in the Indian start-up front is predominantly in EDtech, or the educational technology front.

What can be the Impact of Layoffs?

Layoffs can be damaging mentally as well as financially to the affected workers as well as their families, communities, colleagues, & other businesses. Indian workers who have been laid-off have a big worry. If they are unable to find a new employer within 60 days, they are faced with the prospect of leaving the U.S. & re-entering later. To make affairs worse, the chances of these Indian workers back home are also weak. Most Indian IT corporates have frozen or slowed down hiring as recessionary fears in the U.S. & high inflation in Europe have kept demand low. When a corporate lays off its personnel’s it sends out a message to customers that it is undergoing some sort of crisis. The person who is laid off suffers the most distress, but remaining personnel’s suffer emotionally & mentally as well. The productivity level of personnel’s who work in fear is likely to go down.

What happened in India during earlier Worldwide Downturns?

During earlier worldwide downturns, while corporates scarcely announced layoffs, they would all look to ease out staff who were lower down the staging ladder. Corporates that were in a particularly on bad spot cut work surface strength. Then again, if an personnel was about a month old on the work surface (i.e., without projects), he or she may have been asked to join for some training courses etc. If the professional spent more than three months on the work surface and had not landed a project, the system itself would ease him or her out. What happened in the aftermath of the 2008 downturn that stretched well beyond 2-3 years is that corporates would start slowing down headcount addition. Planned additions from campus would decline or offers would be made but absorption into the corporate could well take 9-12 months from the time of offer.

Way Forward Indian start-ups grew at a faster pace than its neighbouring regions. Just because a start-up had touched a sky-high valuation did not immediately mean its personnel’s jobs were insured. Voluntary retirement scheme (VRS) can enable individuals to transition to retirement steadily.

Alternatives to layoffs? Organizations facing financial problem during economic downturns look to layoffs only as a last resort. Instead, organizations should consider these 11 alternative strategies before downsizing:

1. Conduct enterprise-wide scenario planning early. As the future is highly unpredictable, corporates should develop different scenarios to help inform both short-term and long-term workforce plans.
2. Reduce all nonessential costs. Identify all possible ways to getting rid of or suspend discretionary expenses, e.g., cancelling nonessential travel, moving in-person training to online formats, decreasing company investments, renegotiating contracts with vendors
3. Freeze nonessential hiring. It’s common for corporates to stop hiring for nonessential positions during economic downturns.
4. Defer merit pay raises, promotions, and future discretionary reparation. Postponing salary increases & bonuses help relieve financial problems immediately.
5. Reduce pay temporarily. Applicable on temporary base pay reduction for all employees, either through sweeping salary cuts or shortened workweeks. Executives should lead by example by lowering their reparation before reducing personnel
6. Take advantage of paid time off (PTO) benefits. Because they are already funded, encourage personnel’s to use PTO benefits (e.g., vacation, sick days) as a way of avoiding or at least delaying furloughs or layoffs.
7. Embrace job sharing. Because they allow employers to cut work hours rather than lay off personnel’s, short-term work-sharing programs are well targeted for temporary economic disturbance.
8. Encourage voluntary leave or early retirement. Different options include allowing personnel’s to voluntarily take unpaid temporary leave or voluntary one- to three-month furlough without pay but with health benefits covered.
9. Consider short furloughs with benefits. Implement short furloughs with benefits in order to be well-positioned for a quicker restart when the upswing begins, especially in sectors where it is often difficult to find personnel’s.
10. Investigate all alternative sources of worker pay. Look for grants or government bailouts and, if not obtainable, consider loans.
11. Get creative. Corporates should ask their personnel’s what other measures could be taken to help prevent layoffs and reduce costs.

Any corporate doing business banks upon various aspects for the purpose of its operation, gaining profits and reducing losses. It is also required to look after its personnel’s well enough so that they work efficiently for the development of such a corporate. However, in order to survive in the market, these corporates are required to take accurate and expeditious decisions. Terminating the personnel’s or workers by means of lay-offs or retrenchment may be beneficial to the corporate as both methods follow certain protocols to make sure that the personnel’s or workers are not subjected to unfair conditions.

 

Article by Yakshu Jindal