5 Difference between Lay off and Retrenchment

Lay off and Retrenchment are two terms which are used by the companies and firms to reduce the employee. The main difference between Lay off and Retrenchment is their termination time and nature. Layoff is a temporary termination of the employee and Retrenchment is the permanent termination of the employee. Bothe of these terms are used by the business to reduce their expenses.

It is very important to understand both the terms very well. Many people think both Lay off and Retrenchment are the same but there are many differences between them. In this article we will discuss in detail about the definition and the difference between them. So, read the full article to understand the difference between them.

Lay off vs retrenchment

Sr. No.	lay off	Retrenchment
1	Lay off is a temporary or provisional termination of the employees.	Retrenchment is permanent termination of the employees.
2	While Lay off is an action step.	Retrenchment is a business strategy in which a company reduces its expectations
3	Lay off is defined in the section 2 (KKK) Industrial dispute Acts 1947.	Retrenchment is defined in section 2(oo) Industrial Acts 1947.
4	Lay off is temporary in nature which is a defined period by which Employees are recalled after the completion of the lay off period.	There is no recall for employees in retrenchment.
5	Lay off is declared all works of the company stops.	In the case of retrenchment companies, work remains.

What is lay off

Layoff may be temporary termination of the employee from the firm. Lay is a common method which is adopted by the companies to reduce the expenditure. Layoff is a fixed time period. After the completion of the layoff, the company asks all employees to join that company again with the same last post and salary. In lay, off employees are eligible to get some parts of their salary.

There may be many reasons for lay off

1. Shortage of raw material
2. Economic recession
3. Breakdown of machinery
4. Accumulation of stocks
5. Climatic effects

These are the reasons for which most lay off apply. Like if a company has shortage of material in that case all labor and staff is free from work but there is liability on the company in that case company declares lay off. There are many other reasons like economic and accumulation of stocks. Many times, machinery goes breakdown, in that case man power load also increases on the company. In hills a climatic issue also arises like snowfall and rainfall. When there is heavy snow fall like construction sites may disturbed due to snow and no work performed on site in that case companies declare lay off. These are some reasons which declares lay off

What is retrenchment

Retrenchment is the permanent termination of the employee from the company. This termination is due to the closing of a particular department or replacement of manpower with machinery. This is a business strategy in which companies reduce the manpower to reduce the Liabilities of the extra labor. Sometimes companies change their management strategies in which they merge two posts in one and reduce the extra expenditure. Sometimes companies relocate their location in that case they provide compensation to the employees and break the connection with the employee.

Sometimes due to reduction in product demand the company closes the unit and in that case employees get retrenchment. In this case the company sent employees back to home and their connection with the company immediately severed. Retrenchment is defined in section 2 of the industrial disputes Act 1947.

Main difference between Lay off and Retrenchment

1. Lay off is a temporary or provisional termination of the employees. Retrenchment is permanent termination of the employees.
2. Retrenchment is a business strategy in which a company reduces its expectations. While Lay off is an action step.
3. Lay off is defined in the section 2 (KKK) Industrial dispute Acts 1947. While retrenchment is defined in section 2(oo) Industrial Acts 1947.
4. Lay off is temporary in nature which is a defined period by which Employees are recalled after the completion of the lay off period. There is no recall for employees in retrenchment.
5. When lay off is declared all works of the company stops. But in the case of retrenchment companies, work remains.

Conclusion

This clear that Lay off and Retrenchment are two different ways to terminate the employees from the company. In both the case lay off and Retrenchment employees get compensation as per the specified by the law or act. Gratuity is paid only in retrenchment.

This is all about the difference between Lay off and Retrenchment. We hope you understand the topic very well. For more interesting topics like this please go through our website.