Assign and Remove a License from a User in Office 365
You can remove Office 365 licenses from users and either assign them to another user or have them deleted from your subscription.
When you remove the license, all that user's data is held for 30 days. You can access the data, or restore the account if the user comes back. After 30 days, all the user's data (except for documents stored on SharePoint Online) is deleted permanently from Office 365 and can't be recovered.
Steps to remove a license:
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Go to the Office 365 admin center.
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In the Microsoft 365 admin center, select User management.
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Select the employee that you want to block, and then choose Licenses and Apps.
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On the Licenses and Apps page, un-check the box next to the subscription to remove the license and click Save changes.
Steps to add a license:
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Go to the Office 365 admin center.
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In the Microsoft 365 admin center, select User management.
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Select the employee that you want to add the license to, and then choose Licenses and Apps.
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On the Licenses and Apps page, check the box next to the subscription you want to add the license for and click Save changes.