Big four accounting firms overhired. Now they’re starting to lay off partners.

“This has been a difficult week as we took needed action to address resource challenges in our business, where growth has notably slowed or where we have excess capacity," said Dave Burg, EY’s head of Americas cybersecurity, in the webcast call on Thursday.

The accounting firm is laying off dozens of U.S. partners, a rare tactic that extends ongoing job cuts to the top echelon of one of the Big Four firms. That followed the roughly 5% cuts to KPMG’s U.S. workforce this summer, which also included partners.

While EY, KPMG and Deloitte have collectively laid off thousands of U.S. workers this year, partner layoffs are far less common in the industry. Firms generally have to buy out the partner’s equity and make an additional payment based on the person’s seniority and tenure when they leave, said Tom Rodenhauser, managing partner at Kennedy Research Reports, which tracks the consulting industry.

The Big Four—EY, KPMG, Deloitte and PricewaterhouseCoopers—had a combined 15,700 U.S. partners in 2022, including 3,600 at EY and 2,344 at KPMG, according to market research firm Statista.

Consulting partners and managing directors also are needed to drum up new business when the economy rebounds, said Andrew Nicholas, a research analyst at investment bank William Blair & Co.

But the less-than-expected demand for consulting and transaction services is cutting into profit. The Big Four accounting firms depend on their consulting businesses for 43% to 66% of their global revenue depending on the firm, a situation that evolved over the last two decades.

U.S. worker exits at the Big Four firms—both voluntary and not—are up 43% through October from the year-earlier period, to about 65,800, according to a review of online professional profiles by Revelio Labs, a provider of workplace data. Globally, there were about 307,000 Big Four exits this year through October, up 15.4% from the prior-year period, Revelio said.

“Consultants are supposed to see over the horizon, and they don’t," Rodenhauser said. “They thought the good times are going to continue to be relatively good into the foreseeable future. Now it’s clear that’s not true, which is why the cutbacks have occurred."

Consulting: A cash cow

The Big Four accounting firms expanded their consulting practices over the last two decades, with the related business lines contributing a greater share of their total global revenues compared with audit. Over this time, they have faced repeated concerns over conflicts of interest between their consulting and auditing work. More recently, EY looked to separate its audit and advisory businesses, but had to scrap the plans in April.

Many consulting operations ballooned in staff during the pandemic, convinced that companies would continue to lean on consultants as they adapted their business models to a new normal, said Allan Koltin, chief executive at advisory firm Koltin Consulting Group.

As the economy recovered and interest rates began to rise, however, some clients put less priority on spending on business transformation projects, he said. And more companies are pulling back spending on third-party advisory services, even while they confronted weakening economic conditions and geopolitical uncertainty.

A sharp drop in deal volume and sluggish private-equity transactions also are hurting what was a profitable and reliable business for EY, executives have said in other webcasts earlier this year. EY didn’t respond to a request for comment.

“In 2023 especially, the number of deals being done everywhere declined, and that led to a material impact for many consulting firms," Koltin said. “That includes transaction advisory work, due diligence assignments and quality of earnings reports."

All four big firms booked slower growth in 2023 in terms of overall global revenue and had slower global growth in advisory work. KPMG, which reported its revenue this week, was hit hardest in global advisory among the Big Four, with revenue climbing 2.98% to $12.6 billion for the year ended Sept. 30. That compares with a 13.1% increase the prior-year period and marks the smallest growth since a 2.3% decline in the 2020 period, at the height of the pandemic.

The firms have grown exponentially since the last major retrenchment in consulting in 2008, potentially making it harder for them to respond nimbly to economic challenges, Rodenhauser said.

KPMG over the summer laid off advisory, tax and back-office staff, which followed cuts of some advisory personnel as part of a nearly 2% U.S. staff reduction earlier in the year. Its Americas head count fell by 6%, or about 4,000, to nearly 62,800 people for the year ended Sept. 30.

KPMG declined to comment on questions related to U.S. partner layoffs. The firm has made discrete adjustments on staff levels within business lines, a U.S. spokesman said.

Deloitte cut 1.5% of its U.S. staff in April. The firm added that this was a continuing process: “Based on moderating growth and very low levels of voluntary attrition, we are taking modest personnel actions where necessary," a spokesperson said.

PwC hasn’t had any U.S. layoffs and isn’t planning any, a U.S. spokesman said.

EY, along with consulting giants McKinsey and Bain, are among the firms that have delayed start dates for some new hires.

Firms have remained cautious on U.S. hiring following the layoffs earlier this year. U.S. job postings at KPMG, Deloitte and EY across all business lines dropped 61% in December compared with a year earlier, according to William Blair, which doesn’t track PwC due to an inability to determine the number of positions on its internal job postings board. That compares with a 44% year-over-year decline in December 2022 and a 255% increase in December 2021.

The firms will likely continue looking for ways to save money while trying to avoid additional layoffs, William Blair’s Nicholas said.

“Even if firms’ inclination is that things will get better, they will probably play that a little bit more cautiously in 2024 given how that kind of prognostication played out in 2023," he said.

Walden Siew contributed to this article.

Write to Mark Maurer at mark.maurer@wsj.com and Alexander Saeedy at alexander.saeedy@wsj.com