What is layoff and retrenchment in HRM?


What is layoff and retrenchment in HRM?

Both the layoff and retrenchment in HRM might represent the similar action of terminating and downsizing employees in an organization, but they both occur under very different situations and vary significantly with respect to the definition.

What is the meaning of layoff?

The layoff is an action of temporarily suspending workers/labor from their position due to lack of resources, raw materials, power, finance, economic recession, the downfall of the stock market, etc. The staff laid off from work receive reasonable compensation from the company. During the layoff time, the company goes into a complete shutdown for a while or permanently.

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What is the meaning of Retrenchment?

Retrenchment in general term means reduction of workforce whereas, in Human Resource and legal terms it means termination of contract of employee(s)/ worker(s). It is a business strategy executed by companies and HR professionals to minimize business expenditures by issuing a notice of termination to employees and later permanently terminating the staff in the non-required department(s) by offering a sufficient compensation package in return.

Differences between Layoff and Retrenchment

Layoff

Retrenchment

Temporary suspension of employees/workers.

Permanent termination of Employees/workers.

Defined under Section 2 (kkk) of Industrial Dispute Act, 1947 in the Indian Constitution.

Defined under Section 2 (oo) of the Industrial Dispute Act, 1947 in the Indian Constitution.

During the layoff, a company shuts down its functions and operations completely.

During Retrenchment, a company shuts down a part of its department(s)/sector(s)/ division(s)/ unit(s)/ branch(s), but stays operational.

During the layoff, all the employees/workers or a group of employees/workers are temporarily suspended from work.

During Retrenchment, the last person to enter the company leaves the company (the last comes, goes first.)

The layoff is a volatile action taken by a company/ employer due to due to lack of resources, raw materials, power, finance, economic recession, etc.

Retrenchment is a non-volatile action of downsizing business expenditure and minimizing corporate expenses in the company by terminating employees from a department(s), Branch Office(s), subdivision(s), etc.

Staff are eligible for layoff compensation but not for Payment of Gratuity.

Staff are eligible for retrenchment compensation and Payment of Gratuity.

The employees/ workers can resume working in their usual position once the layoff is lifted. It is mandatory for a company to hire back the laid-off workers after reopening.

The employees/ workers can resume working in the company under certain circumstances depending upon the decision of the higher authorities and management. It is not mandatory for the company to hire back the terminated employees

date  05 Jun 2019

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