Understanding Retrenchment vs. Layoff: Can Anyone Explain the Key Differences?

Dear friends,

What is the difference between retrenchment and layoff? Does anybody know about this? Please tell me.

Warm regards,
Jayanthi.A

Hello Jayanthi,

As far as I know, "Retrenchment" is the word used legally in India. "Layoff" is more of American origin and is extensively used in the IT industry, as you can guess why. Practically, both mean the same, except for the reasons. But I am sure there are better legal experts in this group; let them answer too.

Regards,
TS

Layoff is given to an employee when any incident (natural calamities) arises, or if the company does not have work for a specific period. In such cases, a layoff should be provided.

According to me, lay-off means the failure, refusal, or inability of an employer to give employment to a workman whose name is on the muster rolls of his industrial establishment and who has not been retrenched, on account of a lack of coal, lack of power, lack of raw material, overstocking of output, failure of machinery due to natural calamity, or due to any other connected reason.

Retrenchment means the termination of service of an employee by an employer for any reason other than as a punishment due to disciplinary action. This does not include voluntary retirement, superannuation, non-renewal of a contract, termination on the grounds of continued ill-health. For any reason whatsoever - surplusage, redundancy due to advanced machinery, slowdown in business. The reason does not matter.

I think you will get some idea about these now.

Nanjundi

By retrenchment is meant termination of employment by which an employee is discharged from duties, paying compensation as prescribed under the Industrial Disputes Act. This refers to a permanent cessation of employment. The retrenchment compensation is 15 days' salary for every completed year of service of the concerned employee.

Lay Off, on the other hand, refers to temporary cessation of employment due to non-availability of power, materials, breakdown of machinery, overstock, lack of orders, etc. The laid-off employees will be paid layoff compensation as prescribed under the ID Act, i.e., 50% of salary. Once the work is regularized, the employees laid off will resume work as usual. The days for which they were laid off will not be counted as a break in service but will enjoy all benefits of continuous service.

For both retrenchment and lay-off, prior intimation to the state government of the intention of the company to retrench and/or lay off shall be given. In the case of companies employing more than 100 employees, not mere intimation is sufficient but prior approval/permission from the government to retrench or lay off employees is required.

Regards,
Madhu.T.K

Suneeta, can you please tell where you got this definition of Lay Off and Retrenchment? I do not understand your views in "However, in recent times the term can also refer to the permanent elimination of a position". Do you mean to say that permanent elimination is also a layoff? Please specify whether your concept is with reference to India or not.

Regards,
Madhu.T.K

Dear Jayanthi.a,

Please go through the definition of both the terms and Chapter VA & VB of the Industrial Disputes Act, 1947.

Regards,
R.N. Khola
Senior Associate

I think an added info to all the above replies would be that even if a person is laid off, he has to be taken back once the company starts with the same production/department again. In other words, or in legal terms, it is the employee's right to be taken back first if the company has opened the position or that department again, rather than looking out for someone new in the company. They use the concept of "LAST COME FIRST GO."

Thank you, Mr. Madhu, for clearly differentiating between two terms. Retrenchment is a permanent separation from the organization, whereas a lay-off is a temporary state when an employee remains out of the job.

Surendra

Hierarchy of HR:

Please let me know the exact hierarchy of HR. For example, I am currently an HR Executive. What's the next level, and what is the highest level?

Looking forward to a positive reply.

Parul
(HR Executive)

Dear Madhu Sir,

Can I know whether lay off/retrenchment compensation should be calculated based on 26 or 30 days? Also, I would like to understand what constitutes wages when calculating retrenchment compensation.

Regards,
Atul

I am a management student. I want help with a project report in the HR field, specifically a primary study through primary research in any corporate sector in India.

Dear Mathu Sir,

Thank you for your reply. Now I clearly understand retrenchment and layoff. Could you please explain to me the functions of the HR department?

Warm regards,
Jayanthi A

Retrenchment/ layoff compensation may be calculated on a daily average arrived at by dividing the monthly salary by 26. Salary/wage for this purpose means basic salary plus dearness allowance.

Any function that involves maintaining the employee-employer relationship right from recruitment until retrenchment shall be an HR function. Therefore, identifying manpower requirements, recruitment, selection, placement, training & development, performance appraisal, promotion, grievance handling, redressal of disputes, wage and compensation management, trade union negotiation, implementing welfare measures, management of absenteeism, preventing sexual harassment at the workplace, implementing statutory requirements, taking disciplinary action, conducting domestic enquiries, etc., come under HR.

Regards,
Madhu.T.K

Hi,

As per the above statement, I am 100% in agreement with Madhu. In the case of retrenchment, we remove the name of the person from the muster roll. In the case of a layoff, we retain the employee's name on the muster roll. One could also say we permanently delete the name in the first case and temporarily suspend the name in the second case.

Regards,
Arun

I am writing to inquire whether permission is required for retrenchment and layoff when the workforce is fewer than 100. Additionally, I would like clarification on which 100 workforce count will be considered, i.e., 100 listed on the muster roll or 100 specified on the factory license.

Regards,
Vijayender

Can you please let me know if a manufacturing unit, total manpower is less than 20, then retrenchment is eligible for employees or not if the factory is going to close? Because the company agrees to pay only one month's salary in advance.

Need an urgent reply about this.

Regards,
Priti
9911964471
E: prit85barnwal@gmail.com

Whatever definitions are given by seniors are in a bookish language, which is a bit tough to understand. Moreover, they are simply not clear. I want to have a clear understanding of the difference between these two from a practical approach or in simple language.