Microsoft has announced comprehensive severance packages for the 4,800 employees being laid off, offering up to 39 weeks of base pay based on seniority and tenure. According to Business Insider, the compensation varies significantly by employee level, with those at internal levels 64 and below receiving one week of base pay for every six months of service, while employees at levels 65 to 67 will receive two weeks of base pay for the same period. Executives at level 68 and above have different compensation plans, while eligible employees at levels 67 and below will continue to receive regular stock vesting for 6 or 12 months depending on their tenure. The company will also provide 6 months of paid health insurance with the option to extend coverage for an additional 12 months through COBRA, with terms similar to those offered in Microsoft's voluntary retirement program earlier this year.
Microsoft announced the elimination of 4,800 jobs, representing approximately 2.1% of its workforce, making it the latest major technology company to implement large-scale layoffs in 2026. According to reports from Reuters, the cuts fall heaviest across the company's commercial sales groups and its long-struggling Xbox gaming division, which is facing the most radical organizational overhaul in its history. The company had already announced several rounds of job cuts over the past year, including 9,000 layoffs, and earlier this year offered voluntary buyouts to around 9,000 employees in the United States, representing nearly 7% of its US workforce. Microsoft shares were down 1.4% on Monday following the announcement, reflecting continued investor concerns over returns from generative AI investments. The mass layoffs arrive at the start of Microsoft's new fiscal year, following a painful stretch on Wall Street where the tech giant's stock plunged nearly 23% in the first six months of 2026—marking its worst first-half performance since 2022.
The job cuts include the deepest overhaul in Xbox's history, with approximately 3,200 gaming jobs to be shed over the coming fiscal year, as reported by Mint. Microsoft will transition four gaming studios to operate independently under new management, while more than 30% of eligible employees opted for its recent voluntary retirement programme. The company will also spin off or sell four game studios, with a fifth entering a review process that could lead to closure. In an email to employees, Microsoft's Chief Human Resources Officer Amy Coleman explained that the company was "focusing our people, investments, and energy on the priorities that will keep Microsoft positioned to deliver for customers in a fast-changing industry." She acknowledged that affected employees had made "meaningful contributions" to the company and said Microsoft would provide financial support and other resources to help them transition, with over 4,000 employees shifted into new roles over the past year, including 500 this month. According to Business Insider, Microsoft's Xbox division also plans to cut 20% of its workforce by the end of June.
According to Layoffs.fyi, nearly 1.2 lakh employees have been laid off across 219 technology companies in 2026, with around 119,494 employees affected so far this year. Several companies, including Oracle, Amazon, Meta, Cisco, Salesforce, Dell and Coinbase, have linked their workforce restructuring to AI adoption, organisational simplification or investments in AI infrastructure. Oracle disclosed in June that it reduced its workforce by 21,000 employees over the past 12 months, equivalent to about 13% of its workforce, while Amazon announced 16,000 corporate job cuts in January after reducing another 14,000 positions in October 2025. Meta laid off about 8,000 employees, or nearly 10% of its workforce, while simultaneously shifting around 7,000 employees into AI-focused roles. Microsoft announced the cuts on Monday, the software giant often trims jobs near the end of its fiscal year in June as it sets spending plans for the new year.
Technology companies are expected to spend more than USD 700 billion on AI this year as they expand data centres, develop AI models and build computing infrastructure. The massive AI spending squeeze is severely straining company finances, with Microsoft's mind-boggling capital expenditures required to build AI data centers severely straining the company's free cash flow. While AI demand has dramatically boosted revenue for Microsoft's Azure cloud-computing infrastructure, the capital expenditures required to build AI data centres are severely straining the company's free cash flow. Big Tech's historic AI outlays are piling pressure on companies to show returns from the technology and offset the rising cost of rolling it out across their businesses. These layoffs are mainly for cost-cutting as the company is planning to spend $190 billion in capex this year, mainly for building AI infrastructure. Despite the financial strain, Microsoft remains optimistic about its AI business. In April, the company forecast quarterly Azure revenue above Wall Street expectations and projected capital expenditure of $190 billion for 2026, substantially higher than analysts' estimates. The company is scheduled to announce its latest financial results later this month.
