What Is a Lay-Off and When Can Employers Use It?

 

 

With business costs continuing to rise, many employers are reviewing how they can protect jobs while managing financial pressure. In some cases, businesses may not have enough work for employees for a short period, but they also may not want to move straight to redundancies.

One option that sometimes comes up is a lay-off.

Lay-offs can help employers deal with a temporary drop in work, but they must be handled carefully. Used incorrectly, they can damage trust, lead to employee relations issues, and create legal risk.

So, what exactly is a lay-off, when can it be used, and what do employers need to know?

What is a lay-off?

A lay-off is when an employer temporarily provides no work to an employee for a period of time, while keeping them employed.

The employee is still employed by the business, but they are not working and, in many cases, they will not receive their normal pay during that period.

Lay-offs are usually considered when there is a temporary shortage of work, rather than a permanent need to reduce headcount.

For example, a business might consider lay-offs if:

• customer demand has dropped temporarily
• a key contract has ended unexpectedly
• there is a short-term shortage of materials or stock
• seasonal work has fallen away
• the business needs a temporary measure to avoid immediate redundancies

The key point is that lay-offs are intended to be a short-term solution, not a long-term workforce strategy.

When can an employer use a lay-off?

An employer cannot usually place someone on lay-off just because business is quiet. There needs to be a legal basis for doing so.

In most cases, an employer can only use lay-offs where:

1. There is a contractual right

The employee’s contract may include a clause allowing the employer to introduce lay-offs or short-time working in certain circumstances.

2. The employee agrees to it

If there is no contractual clause, the employer would usually need the employee’s agreement before introducing a lay-off.

Without either of these, an employer may be at risk of claims such as:

• breach of contract
• unlawful deduction from wages
• constructive dismissal

That is why it is important to check contracts carefully before taking any action.

Does lay-off apply to all staff?

Lay-off arrangements are most commonly used for employees, rather than casual workers or contractors.

If someone is not an employee, their rights will usually depend on the wording of their contract and the nature of the working relationship. This can be more complex, so employers should take advice if they are unsure.

How long can a lay-off last?

There is no fixed maximum length for a lay-off in law. However, if a lay-off continues for too long, employees may gain the right to claim statutory redundancy pay.

This can potentially happen if an eligible employee is laid off for:

• 4 or more consecutive weeks, or
• 6 weeks in any 13-week period, where no more than 3 of those weeks are consecutive.

There is a formal process involved, and employers may be able to issue a counter-notice in some situations if work is expected to resume. Because of this, employers should not assume they can continue lay-offs indefinitely without consequences.

Do employees get paid during a lay-off?

Usually, employees do not receive their normal pay during a lay-off unless their contract says otherwise.

However, some employees may be entitled to statutory guarantee pay for certain workless days.

What is statutory guarantee pay?

Statutory guarantee pay is a small payment that may be due when an employee is laid off or put on short-time working.

From April 2026, the rate is £41 per day for up to 5 workless days in any 3-month period. This only applies to days the employee would normally have been required to work.

To qualify, the employee generally must:

• have at least 1 month’s continuous employment
• be available for work
• not unreasonably refuse suitable alternative work
• not be laid off because of industrial action

Failing to pay statutory guarantee pay where it is due could lead to a wages claim.

Because rates can change, employers should always check the latest government guidance.

What is the difference between lay-off and short-time working?

These terms are often mentioned together, but they are not the same.

Lay-off

A lay-off means the employee is given no work at all for a period of time.

Short-time working

Short-time working means the employee still works, but their hours and pay are reduced.

For example:

• A laid-off employee may not work at all that week.
• An employee on short-time working may only work 2 days instead of 5.

Both arrangements usually require a contractual right or employee agreement.

What happens if an employee is off sick during a lay-off?

Employees still have employment rights during a lay-off, including rights relating to sickness absence.

If a laid-off employee becomes unfit for work, employers should follow their normal sickness absence process and check whether the employee qualifies for Statutory Sick Pay (SSP) or any contractual sick pay.

Lay-off does not remove an employer’s obligation to consider sickness rights, so it is important to handle these situations carefully.

How should employers manage lay-offs?

Even when a business has the legal right to use lay-offs, the way they are managed makes a big difference.

Communicate clearly

Employees should understand:

• why the lay-off is happening
• when it will start
• whether it is expected to be temporary
• what pay they will or will not receive
• who they can speak to if they have questions

A lack of communication can quickly lead to confusion and mistrust.

Confirm everything in writing

Any lay-off arrangement should be clearly documented. If employees agree to a contractual change, employers should confirm that in writing and update their written terms as required.

Apply decisions fairly

Lay-offs should be based on genuine business reasons and applied consistently. Employers should be careful to avoid discrimination or unfair treatment when deciding who is affected.

Keep in regular contact

Employees on lay-off should not feel forgotten. Regular updates can help maintain trust and make it easier for people to return to work when the business is ready.

Review the situation regularly

Lay-offs should not become an open-ended arrangement. Employers should keep reviewing whether they remain necessary and whether other options may be more appropriate.

Plan for return to work

When work becomes available again, employees should be given as much notice as possible. Some may also need refresher support or updated information before returning.

Why employers should be cautious

Lay-offs can sometimes help businesses avoid immediate redundancies, but they are not a simple cost-saving tool.

If handled badly, they can lead to:

• employee complaints
• damage to morale
• pay disputes
• legal claims
• longer-term retention problems

For that reason, employers should always review contracts, consider alternatives, and take advice where needed before introducing lay-offs.

Final thoughts

A lay-off is a temporary arrangement where an employee remains employed but is not given work for a period of time. It can be a useful option when there is a short-term drop in work, but it should only be used where the employer has the legal right to do so.

For employers, the most important things are to:

• check the contract
• communicate clearly
• understand pay obligations
• apply decisions fairly
• keep the arrangement under review

Handled correctly, lay-offs may help a business manage a difficult period without moving straight to redundancies. But because the legal and employee relations risks can be significant, they should always be approached with care.