How to transfer Microsoft 365 licence to a new employee when a staff member leaves

Summary

This guide helps you troubleshoot and resolve: How to transfer Microsoft 365 licence to a new employee when a staff member leaves. Follow the steps below to fix the issue.

Common Causes

When a staff member leaves your organisation, their Microsoft 365 licence should be reassigned promptly to keep your seat allocation accurate and to prevent former employees from retaining access to company data. This guide walks you through removing the licence from the departing user and assigning it to a new starter through the Microsoft 365 admin centre.

Before You Begin

Before you start the transfer, confirm the following:

• You have Global Administrator or User Administrator access to the Microsoft 365 admin centre.
• You know which licence the departing user holds (for example, Microsoft 365 Business Standard).
• You have already created the new employee's user account, or are ready to do so.
• You have saved or backed up any data you need to retain from the departing user's mailbox or OneDrive.

Quick Fix Steps

1. Sign in at https://admin.microsoft.com/.
2. Remove the licence from the departing user.
3. Assign that licence to the new employee.
4. Confirm sign-in works for the new user.

Detailed Instructions

Step 1: Sign in to the Microsoft 365 Admin Centre

Open a browser and navigate to https://admin.microsoft.com/. Enter your administrator credentials. If you do not have admin access, contact your IT administrator for assistance.

Step 2: Remove the Licence from the Departing User

1. In the left-hand menu, expand Users and select Active users.
2. Find the departing staff member by typing their name into the search field.
3. Click on the user's name to open their details pane.
4. Select the Licences and apps tab.
5. Untick the checkbox next to the licence you want to remove (for example, Microsoft 365 Business Standard).
6. Click Save, then confirm by selecting Remove in the prompt.

Step 3: Assign the Licence to the New Employee

1. Still in Active users, search for the new starter's account.
2. If the account does not yet exist, click Add a user at the top of the page and complete the new user wizard.
3. Open the new user's details and select the Licences and apps tab.
4. Tick the checkbox next to the licence you just freed up.
5. Click Save to apply the licence assignment.

Step 4: Verify the New User Can Sign In

1. Ask the new employee to sign in at https://www.office.com/ using their work email and temporary password.
2. Confirm they can access Outlook, Teams, and OneDrive.
3. If they are prompted for multi-factor authentication, complete the setup using the method configured by your organisation (typically the Microsoft Authenticator app).

Troubleshooting

The Licence Option Is Greyed Out

This usually means another administrator is currently editing the user, or your account does not have permission to manage licences. Wait a few minutes and try again, or confirm your role under Users > Role assignments.

The New User Cannot Sign In After Assignment

• Confirm the licence has finished provisioning. Licence changes can take up to 15 minutes to apply.
• Check that the user's sign-in status is set to Allowed (not Blocked) under their account properties.
• Reset the user's password from the admin centre and ask them to try again.

You Cannot Find the Correct Licence

Navigate to Billing > Licences in the admin centre to view every licence your organisation owns, along with how many seats are available.

You Need to Recover Data from the Departing User First

Before removing the licence, sign in to the departing user's account (or use admin impersonation if enabled) and export any required mailboxes or OneDrive content. Once the licence is removed, the mailbox enters an inactive state and recovery becomes more complex.

Still Having Issues?