Restructuring Charge: Definition, Examples, and How It Works

It’s a reality of business that certain corporations will need to undergo restructuring shifts. Alongside the logistical and legal elements of this process, one of the concepts leaders are often confronted by is the restructuring charge. 

This is a financial accounting term that represents the costs companies incur during these periods of major organizational changes, often associated with layoffs, facility closures, or alterations to the business model. These are not costs that are connected to day-to-day operations of the company, but rather are focused charges that reflect necessary changes that help keep the business operational as it navigates transition.

As a result, it is vital for entrepreneurs, investors, and executives alike to understand restructuring charges. We’ve created this article to provide a clear definition of these charges, insights into how they work, examples of their application, and examine what their potential implications are in the context of global business.

What Is a Restructuring Charge?

Definitionally, a restructuring charge is typically a one-time expense that a company records to account for the costs it incurs during restructuring or reorganization of operations. 

These charges are distinct from regular operating expenses. The latter relates to the ongoing costs that are associated with the daily operations of the company, such as rent, utilities, raw materials, and payroll. The former, on the other hand, is specifically linked to costs caused by events that impact the company’s structure or strategy.

It’s also important to understand that charges serve a specific purpose in financial reporting. In essence, they help to provide transparency to stakeholders—and, in some instances, regulatory bodies—through separating the extraordinary expenses specifically related to restructuring from the day-to-day costs of organizational functions. This often gives more accurate insights into the underlying health of the company beneath its transition activities, offering investors and analysts clear data with which to make informed decisions.

Types of Restructuring Charges

There are various types of costs that make up the wider definition of restructuring charges. These include:

• Employee costs – One of the most common restructuring costs. This can include severance packages following workforce restructuring and retirement benefits for those the company encourages to leave voluntarily. If a company reassigns staff to different locations, relocation expenses may form part of this definition, too.
• Asset costs – Asset-related charges can form a substantial part of restructuring costs. These relate to the necessity for companies writing down the value of any equipment or property that is no longer useful in the new structure. It also encompasses costs associated with the early termination of leases or the closure of facilities.
• Contractual obligations – In some instances, operational and structural changes mean that companies must break or modify existing contracts. This can incur charges in the form of financial penalties applied or legal costs involved in contractual adjustments.
• Other costs – There can also be costs that occur during restructuring but don’t fit neatly into a category. Some common examples here include advisory and legal fees from consultants handling the complexities of restructuring. Costs may also result from adjustments that must be made to ensure the new structure or operations meet regulatory compliance standards.

How Restructuring Charges Work in Business

In most cases, a restructuring charge is recorded by a corporation specifically at the time it has chosen to formally implement reorganization or restructuring procedures. This is an important element to clarify, from a regulatory standpoint. Accounting standards set forth by regulatory bodies typically establish that charges must only be recognized when the obligation for restructuring-related changes become unavoidable. Costs incurred at a time when a company is merely considering restructuring aren’t usually eligible.

Why is this timing relevant? When the charges are officially recorded, they then appear on the balance sheet as an expense. As a result, they functionally reduce the net income generated during the period in which they occurred. They can also appear on the balance sheet as liabilities, including the expected future payments related to severance or lease termination.

The timing of recording these charges isn’t just dictated by the company’s choices. Accounting standards frameworks, such as the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) also implement rules related to the recording of charges. These standards are largely geared toward ensuring the application of expenses is transparent and not manipulated for strategic business purposes.

It’s also vital to recognize that while most charges are one-time expenses, they can also affect future profitability. They can appear to signal short-term financial distress, but when used effectively, can improve operations in the long run, including reducing operational expenses.

Examples of Restructuring Charges

It can be useful to look at some examples of how global corporations apply charges. In the technology sector, market shifts can—and recently have—resulted in the necessity for large layoffs and contract terminations during restructuring. Another example is airlines. Restructure charges are often recorded when aircraft are retired earlier than expected or routes that are no longer profitable are exited. These costs are recorded clearly in earnings reports to provide reassurance to investors that these relate to temporary hurdles.

Indeed, it is via these financial disclosures that charges are typically communicated to relevant stakeholders. Providing sufficient detail in these recordings not only highlights the size of restructuring costs and their distinction from regular expenses, but also gives companies reference points from which to discuss the potential benefits of their changes.

This transparency and commitment to communication is essential, as the reports can influence investor perception and stock performance. Clarity and context are more likely to boost the confidence that supports sustainability than opaque or inconsistently recorded costs.

Why Companies Incur Restructuring Charges

Some of the common reasons companies incur restructure charges include:

Cause	Explanation
Financial distress	Companies incur charges in response to financial distress or declining performance. These might include expenses caused by reduced revenues or in pursuing cost-cutting measures, among others. A common situation for those considering what is a turnaround strategy.
Strategic shifts	Companies’ choices to change their strategic direction can result in charges. For instance, costs related to digital transformation, divesting unprofitable units, or moving away from declining markets.
Mergers, acquisitions, or divestitures	Combining companies through mergers and acquisitions can generate significant restructuring costs, such as those related to consolidating operations and eliminating redundant practices. Divestitures, too, can incur one-time charges related to asset write-offs and severance.
Globalization	Expanding into new jurisdictions often involves costs that can be considered restructure charges. These include expenses related to adapting operations to regulatory environments or adjusting to shifting global economic conditions.

Advantages and Disadvantages of Restructuring Charges

Advantages

• Potential long-term cost savings.
• Improved efficiency in operations
• Closer alignment with market demands
• Clarity for investors and other stakeholders
• A more robust business model following strategic changes

Disadvantages

• Financial losses and higher overhead in the short term
• Negative impact on employee morale and engagement due to workforce reductions
• Reputational risks due to public perception of employee layoffs and facility closures

The Role of Leadership and Advisors

Leadership and advisors play vital roles in ensuring not only the changes are implemented effectively, but also that the restructure charges are recorded correctly. Executives, in many cases with the support of a chief restructuring officer (CRO), will carefully design, execute, and oversee restructuring plans. Importantly, they’ll implement internal and external communication protocols that will include providing stakeholders with clarity on financial reporting.

External collaborators are important during this process, too. Corporate restructure consulting experts, regulatory professionals, and financial advisors contribute their niche knowledge during the planning and execution of effective restructuring. They guide leaders and staff through making informed compliance, accounting, and operational decisions that mitigate the common risks related to incurring charges.

FAQs

What are restructuring charges?

They are usually one-time expenses that a company records when restructuring operations. These can include costs associated with severance, asset losses, legal fees, and other expenses that are separate from day-to-day operating charges.

How do restructuring charges affect a company’s profits?

In the short-term, charges can reduce profits as they are recorded on balance sheets as expenses. However, the restructuring elements they pay for can result in long-term reductions in costs and greater efficiency that boost profits.

Are restructuring charges tax-deductible?

Different jurisdictions have various approaches to the tax treatment of these charges. Many consider them to be tax-deductible, but it’s vital to consult with expert advisors.

Why do investors care about restructuring charges?

Investors will scrutinize these charges because in some instances they are red flags for financial risks, while in others they can indicate the company is taking proactive steps that present valuable opportunities.

What industries most commonly report restructuring charges?

Industries where rapid change or cyclical pressures are common for incurring charges, including technology, retail, airlines, and manufacturing.

References

IFRS. (2025). IAS 37 Provisions, Contingent Liabilities and Contingent Assets. IFRS. https://www.ifrs.org/issued-standards/list-of-standards/ias-37-provisions-contingent-liabilities-and-contingent-assets 

Fernando, J. (2025, May 30). Generally Accepted Accounting Principles (GAAP): Definition and Rules. Investopedia. https://www.investopedia.com/terms/g/gaap.asp