How a Layoff Affects an Organization

Direct Costs

One of the things a business owner considers when he needs to save money at a company is laying off staff in anticipation of saving money on payroll and benefits. However, the company often ends up incurring costs as a result of the layoff that minimize the savings. For example, the company may have to issue severance pay to outgoing employees, pay overtime wages to remaining employees and use placement services for temporary help.

Increased Turnover

Business owners who execute layoffs in their companies frequently see additional employees resign from their jobs. Layoffs can disillusion top-ranking employees who then opt to leave the company. Watching a colleague leave involuntarily could cause an employee to consider job offers from other companies seriously or to actively seek new job opportunities.

Decreased Customer Loyalty

Laying off employees can have a significant negative effect on customer retention. Every customer is an asset to any company, and the employer must find ways to retain each of them. When a company lays off its employees it sends out a message to customers that it is undergoing some sort of crisis. Fewer employees could mean delays in the delivery of goods and services, further alienating customers.

Emotional Distress

The person who is laid off suffers the most distress, but remaining employees suffer emotionally as well. Because the layoff disrupts the status quo, employees have to pick up extra responsibilities and form new work relationships, which can cause stress. The productivity level of employees who work in fear is likely to go down. The situation is even more damaging to the company when the person who has lost his job stays around until the date of termination of his contract.