What’s Driving Layoffs: Key Factors for Small and Medium-Sized Businesses

According to our Outplacement and Career Mobility 2024 Trends Report, HR leaders globally expect layoffs to affect 16% of their workforces this year. While there is optimism that this will be a decline compared to 2023, layoffs remain a reality for many companies. However, the drivers behind these layoffs have shifted, and it goes deeper than over-hiring in previous years as observed last year.

While large corporations are often in the spotlight when it comes to workforce reductions, small and medium-sized businesses face their own unique challenges. Some of the top cited business reasons for a layoff in 2024 are low performance or a mismatch of employee skill sets – problems that are amplified in smaller workforces.

Releasing Employees for Low Performance (cited by 30% of leaders)

For smaller businesses, maintaining a high-performing team is crucial for growth and sustainability. Many smaller companies lack the bandwidth to carry underperforming employees, and in leaner organizations, every role counts - ensuring that each employee is contributing to their team is essential to maintaining productivity.

Releasing Employees Who Lack the Right Skill Sets (cited by 29% of leaders)

With technology causing the rapid evolution of many industries and shifting business demands, employees who lack the necessary skills can become a bottleneck for growth. For smaller businesses that don’t have robust learning and development programs in place, it can be difficult to bridge this skills gap internally. Layoffs in these cases are often seen as a way to realign the workforce with current and future business needs.

Undergoing a Restructuring or Reorganization/Mergers & Acquisitions (cited by 29% of leaders)

Whether it’s due to scaling or adapting to market changes, restructuring a small business often involves difficult workforce decisions. In these cases, layoffs may be necessary to streamline operations and align with new organizational direction.

While more common in larger organizations, M&A activity also affects smaller businesses. When a merger or acquisition occurs, redundancy is often a driving factor in layoffs, as businesses look to consolidate roles and reduce costs. A small business that is part of a merger or acquisition may find themselves in similar situations, needing to make tough decisions to ensure future stability.

Cost-Cutting Imperatives (cited by 28% of leaders)

In today’s economic environment, reducing costs remains a priority. Most small businesses operate on thinner margins than large corporations and may face even greater pressure to reduce labor costs as a means of survival. Layoffs driven by cost-cutting tend to occur when businesses need to trim expenses to remain competitive, especially in sectors where profitability is tight.

For small and medium-sized businesses, layoffs are rarely a simple decision, but they may be necessary for long-term viability. Whether due to performance issues, skills gaps, restructuring, or the need to cut expenses, leaders should approach these decisions strategically. While layoffs can provide short-term relief, investing in upskilling, reskilling, and redeploying employees where possible can position businesses for future success and reduce the likelihood of further workforce reductions.

Download our 2024 Outplacement and Career Mobility Trends Report to learn more about how layoffs are affecting small and medium-sized businesses.