There are several ways for an employee to leave an organization, which can be voluntary or involuntary. Two common routes of involuntary termination are either laying off an employee or firing them. When it comes to laid off vs. fired employees, the process can be both expensive and anxiety-inducing. That’s because employers may have to deal with repercussions, such as going through the hiring process to refill the position and dealing with regulatory compliance responsibilities like paying unemployment benefits.
In this guide, we’ll discuss the key differences between firing vs. laying off employees and what that might look like for your business. Here, you’ll learn about the differences in the reason for termination, the differences in the compensation a terminated employee can receive and how working with the right employer services company can help you manage your unemployment costs.
Firing vs. Laying Off: What It Means for Your Unemployment Costs
Letting go of an employee is never easy. Whether your organization is facing an uncertain financial future and you need to cut your workforce through layoffs or if you have an employee who has violated a policy and needs to be fired, both scenarios require thoughtful consideration and can be expensive. That’s because the cost-per-hire, the amount of money a company typically spends to fill an open position, is expensive. In fact, a 2022 SHRM Report found that the average cost-per-hire totaled nearly $4,700, which means the decision to terminate an employee, whether laid off vs. fired, shouldn’t be taken lightly.
Along with cost-per-hire expenses, terminating an employee can be expensive in terms of unemployment costs. One of the key differences between being laid off vs. fired centers around an organization’s responsibility to pay unemployment benefits. Generally, laid off workers are entitled to unemployment benefits, whereas fired employees may not be. We’ll dive deeper into the intricacies of being laid off vs. fired below so you can better understand the nuances that go into these different types of employee terminations.
Differences in the Reasons for Termination
There are several key differences in the reasons for termination when looking at fired vs. laid-off employees. Generally, laying off employees is the result of an organization’s poor financial performance, where they can’t continue employing a large workforce and need to cut expenses like employee salaries. Below are some of the top reasons for laying off an employee:
- Economic downturn: In periods of economic turbulence, employers may need to let employees go to reduce costs and remain viable during financial instability or an economic recession. Typically, layoffs can be due to decreased demand for a company’s products or services, resulting in revenue loss.
- Restructuring: In some cases, companies may decide to reorganize and restructure their organization to adapt to changing market conditions or shifts in business strategies. As a result, they may need to consolidate departments, eliminate unnecessary positions or reallocate resources, which can result in layoffs.
- Mergers and acquisitions: Another common reason for layoffs is mergers and acquisitions, where a corporate takeover occurs and overlapping roles or duplicate functions need to be eliminated, leading to layoffs.
- Outsourcing: Layoffs can also be the result of a company outsourcing certain functions to reduce labor costs or gain access to more specialized skills.
- Financial constraints: From cash flow issues to budget deficits and declining profitability, a company’s financial performance can cause employers to lay off workers to stabilize their finances.
These are some of the common reasons an organization may have to turn to layoffs. Laid-off workers are typically let go through no fault of their own, resulting from circumstances that are out of their control.
On the other hand, firing an employee typically occurs due to reasons for which the employee bears responsibility. There are various scenarios that may lead to an employer firing an employee, such as:
- Performance issues: Employees who consistently fail to meet job expectations, quality standards or deadlines despite receiving feedback, warnings and opportunities for improvement could be fired.
- Misconduct: A serious reason for firing an employee may have to do with employee misconduct, where an employee engages in a behavior that disrupts the workplace environment. Examples may include violence, verbal abuse, insubordination, harassment or creating hostile working conditions.
- Violation of company policies: Breaching a workplace contract can be another reason for firing an employee, such as theft, discrimination, dishonesty, substance abuse on company property or breaking ethical standards.
- Attendance issues: Employees with a track record of poor attendance or punctuality could be at risk of being fired.
- Gross negligence: Acting recklessly and failing to follow instructions and safety protocols that can put employees and customers at a safety risk can lead to an employee being fired.
- Conflict of interest: If an employee engages in activities or relationships that pose conflicts of interest with those of the organization they work for, their employer can use that activity, such as accepting bribes or working for a competitor, to fire them.
These are just some of the many reasons an employee could be fired. The primary difference in reason between laid off vs. fired employees has to deal with employee fault. Laid-off employees are typically terminated through no fault of their own, whereas fired employees are typically terminated due to their actions or inactions. In turn, the reasoning behind the termination can impact their compensation once they’re let go, which we’ll explore below.
Differences in the Compensation Received by the Former Employee
Laid-off workers are terminated through no fault of their own, and fired employees are terminated due to their actions. As a result, the compensation they receive can be impacted. Laid-off employees can be entitled to severance pay or benefits such as a salary or insurance for a brief duration after being let go. Along with a severance package, laid-off employees can receive unemployment compensation because they were let go through no fault of their own.
On the other hand, fired employees typically don’t receive a severance package unless specified in their employment contract or agreement. Additionally, many fired workers are not allowed to claim unemployment benefits, especially if they were fired for misconduct or gross negligence, depending on the laws and regulations of their jurisdiction.
Choosing the Right Partner to Manage Unemployment Costs Is Vital
As we know, terminating employees, whether through being laid off vs. fired, can be costly, especially when managing unemployment costs. Employers are required to pay state and federal unemployment taxes, and the premiums they pay are based on the size of their workforce, their history of layoffs and their state’s UI tax rate. So, higher layoffs or a history of frequent claims can result in higher UI premiums for organizations. With a trusted unemployment services partner, you can reduce these costs by avoiding overpayments, streamlining accuracy and maintaining compliance.
Avoiding Unemployment Insurance Overpayments
With a service provider like Experian Employer Services, you can receive help conducting audits of unemployment insurance claims to identify potential overpayments and errors that are digging into your bottom line. Our claims administration and management services can help handle claims on your behalf and represent you in appeals hearings to minimize improper payments.
Streamlining and Accurately Assessing Unemployment Costs
Unemployment cost and claims management services can also help you streamline and accurately assess your unemployment costs by improving the process of managing unemployment insurance claims, appeals, and wage determinations. Our intuitive technology solutions with features like claims tracking and reporting analytics help reduce errors and save time.
Navigating Complicated Regulatory Frameworks for Compliance
Our team of experts can help you navigate the complicated regulatory frameworks for compliance by offering consulting and advisory services. These services help conduct cost-benefit analyses, implement measures to reduce turnover and provide guidance on the complex legislative and regulatory landscape to ensure you remain compliant.