Voluntary layoffs: Are they a good idea?

Voluntary layoff might sound like an oxymoron. 

But when businesses go through serious structural or financial changes, they may offer their staff a deal to leave on good terms and choose to leave, rather than surprise them with layoffs. This approach can bring more compassion and choice to a difficult reality. 

Even so, there’s no ideal way to lose staff, and voluntary layoffs are still difficult for employees and organizations alike.

If you’re debating whether to accept a voluntary severance package, consider these benefits and drawbacks before making a decision. 

What’s a voluntary layoff?

A voluntary layoff, sometimes called a voluntary separation, is when your employer encourages you to resign freely in exchange for a voluntary severance package. This is different from voluntary termination, where you make the decision as an employee to leave.

An organization may negotiate a voluntary layoff when you’re ready for retirement or as part of a downsizing strategy. This can be due to budget cuts, redundancies, or restructuring following a business merger or buyout. Layoffs usually involve a group of employees, and voluntary layoffs will give them the choice to separate from the company on their own terms.

There are a few additional kinds of job loss to take note of: voluntary termination, involuntary termination, and involuntary layoffs.

Voluntary termination

Voluntary termination means choosing to quit or leave your job. This could be because you’re moving on to a new company, going back to school, or dissatisfied with working conditions. Voluntary layoffs fall under this umbrella because they give you the choice to stay or go.

Voluntary versus involuntary termination

If voluntary termination is making your own decision to leave your job, involuntary termination is the opposite — the choice isn’t in your hands. Involuntary termination is another term for getting fired or laid off. 

When an organization decides to fire an employee, it's most often the result of poor job performance or conduct. But a layoff, voluntary or not, doesn't have to do with your value as an employee, and it’s usually caused by external factors like a recession. 

Voluntary layoff versus involuntary layoffs

During most traditional layoffs, management chooses which employees will leave and notifies them of the decision. But voluntary layoffs put the power in your hands. You can assess your severance package and decide whether it’s worth it to leave or stay.

What do voluntary layoffs mean for organizations? 

Even if your organization adds an element of choice to workforce reduction, a termination still means that someone loses a job. Organizations have to approach voluntary layoffs sensitively to keep up the morale and encourage employee retention for remaining staff. 

Here are some of the benefits of voluntary layoffs from a business perspective:

• Makes the layoff process less negative: Allowing employees to weigh out their options shifts their focus from the job loss to career growth or fresh starts. Managers can frame the termination as an opportunity for professional development. 

• Eliminates the surprise factor: Layoffs have a reputation for coming out of the blue, but with voluntary layoffs, they don’t have to. Giving employees the choice to leave gives them more time to make a decision and consider their options. It also reflects positively on decision-makers because it shows foresight about the company’s situation.

• Lowers legal risks: Letting employees make their own choice can avoid making them feel blindsided, which can decrease the potential for wrongful termination action. 

Voluntary layoffs may be a gentler option, but they still have their consequences. Consider the following disadvantages:

• Loses strong team members: Creating a voluntary program often means giving strong employees the option to leave — and they could take it. Losing high performers or company leaders could create potential information silos and make the business reevaluate its reporting structure.

• Affects your budget: Leaving a job is a big decision that most people won’t want to make. Businesses might have to dedicate a large budget to separation packages to entice people to leave. If they’re already dealing with budget issues, this could cause more financial stress. 

• Requires a plan B: If not enough employees volunteer to separate, a company will likely have to undergo traditional layoffs. And if they dedicated a large budget to those who did leave voluntarily, they might not have the funds to give employees the severance they deserve. 

What do voluntary layoffs mean for employees?

Even in your best-case scenario, losing a job is overwhelming. There are lots of emotions to process and decisions to make. 

If you're an employee deciding whether to accept a voluntary layoff, here are some benefits to consider:

• Easier exit: You don't get a severance package when you quit your job. If you were already thinking of leaving due to low job satisfaction or other opportunities, a voluntary severance package offers a financial benefit that quitting doesn't. 

• The push you need: Taking the leap on a career change is intimidating. You have to consider your career level, job opportunities, and family responsibilities, just to name a few factors. A voluntary layoff could be a positive change that lets you explore new roles and responsibilities, switch industries, or pursue your own projects. 

• Career break: Family, career, and personal stresses can make you feel burnt out. A voluntary layoff with sizable severance pay and attractive incentives, like continued healthcare and outplacement services to help you find a job, may offer the break you need to recharge and reevaluate your professional goals.

A voluntary layoff could positively disrupt your career, but it's still a disruption. Here are some disadvantages to think about:

• Visa problems: Foreign employees risk losing their visa status when their contracts end. If this is the case for you, consult with a lawyer to understand the implications a layoff could have on your visa before making a decision.

• Financial blow: Leaving your job can challenge your or your family's financial wellness. Carefully analyze your finances and decide whether the severance package is enough to maintain your current quality of life until you find a new position.

• Psychological toll: Unemployed people experience more mental health problems than employed people. The stress of making the right decision, combined with planning for the uncertainty of unemployment, could take a serious toll on your mental health.

  This could include increased anxiety, emotional distress, and even job search depression. Reach out to your personal and professional network, human resources (HR), or a career coach for the support you need to feel confident in your choice. 

What to consider for a voluntary separation

Accepting a voluntary layoff offer is a big decision that could have legal implications. Here are a few things to think about before making your choice:

1. Unemployment benefits: Voluntarily leaving your job may impact your eligibility to collect unemployment benefits from the U.S. Department of Labor. Check with your state's unemployment insurance program to determine whether you qualify for federal assistance or if your severance payment affects your standing. 

2. Legal counsel: Employees and HR departments should consult with legal counsel to ensure the layoff complies with employment laws, like the WARN Act, which requires employers to give advance notice of closings and mass layoffs. If you suspect your employer isn’t following this act, talk to a legal expert.

3. Be proactive: If your organization is going through financial trouble and is considering a reduction in force, you can propose a voluntary layoff before your employer comes to you. A quieter layoff process can help organizations keep up morale, which gives you an advantage while negotiating.

What makes an attractive voluntary separation severance package?

A severance package should include payment, some benefits, and job-seeking assistance. When you're laid off from work, you might need time to process before getting a new job, and compensation from your employer softens the transition. 

Here are a few benefits and incentives to look for in a separation package:

Severance payment

A voluntary layoff doesn’t have to be a blow to financial security. Severance payments can help you get back on your feet after losing a job. The amount depends on how long you’ve been working at the company, what your salary is, and what criteria your employer decides to use to calculate the amount. The amount might also consider reimbursement for unused paid time off or annual bonuses.

Payments might also come in a lump sum or installments, depending on how much your employer is giving you. You should receive a formal last day of pay with your exact date of termination.

Benefits

Losing your employee benefits can greatly impact your financial, mental, or physical health, especially if you were using them often. Your package could include a continuation of health insurance benefits until a certain date, and if the current agreement doesn’t suit your needs, you can try to negotiate for more.

A severance agreement should also consider other benefits, like your retirement plan, 401k, or stock options. 

Job-seeking assistance

Employers might also offer outplacement services or recommend you for employment at other companies. If your severance package doesn’t include job assistance, try contacting your manager and HR for help finding potential employers. This is also your chance to ask for references, introductions, and letters of recommendation.

When to take a voluntary severance package

Leaving your job is a deeply personal decision that can majorly impact your career path and mental health. To welcome a positive shift in a new direction, weigh the different scenarios against the voluntary severance program’s pros and cons.

Here are some situations in which accepting a voluntary layoff is the right decision:

1. Your job’s in high demand: If you have in-demand skills or an in-demand job, it may be easy to find new employment. Switching jobs could also land you a higher salary or better culture fit.

2. You want a change: If you've been dreaming of exploring a career change or turning a side hustle into a full-time gig, a generous severance package could be the push you need.

3. You’re ready for upward mobility: If you've been working a dead-end job with no room for upward mobility, it might be time to look for new opportunities for growth.

4. Retirement is around the corner: If you’re approaching the end of your career and can live off severance and savings until your retirement benefits begin, it might be worth retiring early.

5. Your company’s not doing well: If your company is frequently in the news for restructuring, downsizing, or negative staff decisions, it might be time to look for a healthier work environment.

Weigh your choices

Choosing to leave your job is rarely easy, and learning about layoffs and downsizing can be disheartening. But even bad news can bring positive new opportunities, and a voluntary layoff might be just that. 

Take the time to listen to your manager or HR department, carefully examine the severance package, and decide whether it’s time to move on to bigger and better horizons. Give yourself time to process the news, and when you’re ready, think about whether this is the change you’ve been waiting for.