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You can set an employee as Active or Inactive by clicking the Make Active/Make Inactive button in the Employee tab when the employee's details are displayed.
Inactive employees are usually employees that have stopped working. Therefore, such employees no longer need to be managed in the system (i.e. they cannot be assigned to Tickets, cannot be used for labor charges, cannot be dispatched for on-site visits for open Tickets, etc.).
Setting the employee to Inactive will release one active employee license for use by another employee.
You can tell whether an employee is active by visiting their Employee tab or by viewing it in the relevant column when displaying a list of all employees.