What maybe the reasons for a business company for downsizing?

1. Career development
2. 13 Reasons for Layoffs Within an Organization

By Indeed Editorial Team

Published February 22, 2021

Depending on the needs of the business and its financial health, it may need to lay off employees. This is usually because of a change to the company structure or overarching strategies of the business and less to do with employee performance. However, it can be helpful to be aware of the reasons an employer may lay off members of its staff so you have more knowledge to prepare yourself for the possibility.

In this article, we describe what a layoff is and provide a list of reasons an employer may perform a layoff.

Related: What Is the Difference Between Laid Off and Fired?

What is a layoff?

A layoff is an action your employer may take to terminate your employment with the company. It's usually not because of performance; instead, there are other reasons why an employer may decide to eliminate a position or remove an employee from the organization. An employer may choose to lay off an individual or an entire group of employees, and it may be a temporary or permanent decision.

Related: How to Move Forward After Being Laid Off

13 reasons for layoffs

There are many reasons a company may have to lay off one or several employees. Here are some to consider:

Company relocation

Company stakeholders may decide to relocate the company to another part of the country, which is common for businesses that need more space for its operations or want to be in a city that's better for the industry. Employees who are unable to relocate with the business may be laid off so they can find employment elsewhere.

Related: How Does a Job Relocation Work? (With a List of Steps + Tips)

Business closing

If a company is going out of business, it'll likely start performing layoffs, only keeping those on staff who they require to work to maintain the level of operations the business needs. Upon the dissolution of the business, the remaining employees may experience a layoff.

Cost-reducing measures

One of the most common reasons for layoffs is because the company is cutting costs for some reason. This could be because the business has to pay off debts, there are fewer sales or the company no longer has the financial backing of investors. Whatever the case may be, a way that the company could save money is by eliminating some positions and allocating those funds elsewhere.

Mergers

A merger is when two separate companies combine into one new company. Two businesses may merge for tax purposes or to increase their product offerings, reduce industry competition and realize more profits. While mergers can mean that the new company needs more employees to help the business realize its goals, a merger can also affect the employment of some staff members. The leaders of the newly formed business may choose to layoff some employees to save more money or because there would otherwise be duplicate positions within the organization.

Related: Pros and Cons of Business Mergers and Acquisitions

Acquisitions

An acquisition, also called a buyout, is when one company purchases another. The company may do this to increase its market power or gain access to new resources, among other reasons. Because an acquisition usually comes with new leadership and business strategies and a change to company policies, employees at the original company may experience a lay off. The company may also lay off employees that perform the same or similar job to others from the company making the purchase.

Decreased operations

Depending on business needs, a company may choose to close a part of its operations and go through layoffs. For example, a soda company that has two offices responsible for taking service calls and routing technicians to repair soda machines may decide to close one call center branch and move all operations into the other. They may advise that employees in the closed branch apply for other positions within the company, but any who don't secure a new role may be laid off.

Outsourcing options

To hire and retain employees can be expensive between the costs of recruiting, training, providing benefits like health insurance and offering perks like cell phone reimbursement. Some companies may choose to perform layoffs if they start outsourcing work to independent contractors to save money. This is an option for many businesses because the contracted individual is then responsible for their own insurance and income taxes.

Loss of funds

One of the more common reasons for a loss of company funds is a big decrease in sales or an investor who has changed their mind about investing. If the company isn't realizing a profit, they are likely not in the financial position to continue to pay employees, which can result in a large layoff. While this may be temporary and only last until the company has secured additional funds, some layoffs can be more permanent, depending on the company's financial health.

Seasonality

Companies that operate exclusively or mostly during certain times of the year may lay employees off because of seasonality. For instance, it's likely that a ski resort operates mostly during the winter months, so they may elect to lay off employees in the spring when the ski resort is no longer accepting as many guests. They can choose to keep some employees if the resort remains open in some capacity. They may also decide to only temporarily lay off employees, with the intention of reinstating their employment during the next busy season.

Related: What Is Seasonal Work? Definition, How It Works, Types and How to Get a Seasonal Job

Increase in technological advancements

As technology continues to advance, and automation becomes more common for businesses, some employers may lay off their staff to reduce their costs and decrease position redundancies. However, an organization may commit to finding another role for the employee and transfer them to the position if the employee meets certain requirements and is willing to make the change.

Project cancellation

A company may go through a massive hiring to support the needs of a large-scale project. However, if that project is canceled the company may need to lay off the employees it hired. Although an organization may move employees to other areas of the business to prevent layoffs, it may need to lay off some employees who don't have the experience to work in another department.

Update to position requirements

Sometimes companies go through a pay scale and job description restructuring, which usually involves an outside company evaluating how the business currently operates and offering suggestions for changes based on similar companies and the need to stay competitive while being fair to employees.

What can happen during a restructuring is that the company may change their job requirement for certain positions. For example, while one position may currently require a high school diploma, the job description could update to require a minimum of a bachelor's degree. The company may lay off any employees in that position who don't meet the new requirements.

Offshoring

Offshoring is the act of moving your business operations overseas. There are many reasons a company may choose this route, including more cost-effective labor and tax breaks, but they may not select to keep the same employees, opting instead to hire new staff members once they set the business up in the new location. If this is the case for a company you work for, you may experience a lay off.