How to cut staff costs without making redundancies

Ruaidhri Murray

July 31 2020

Businesses across the UK face an uncertain future as a result of the COVID-19 pandemic.

Many economists warn of a potential recession, while virologists warn of a second wave. Furthermore, business leaders in industries from hospitality to oil and gas warn of mass redundancies.

Reading these dire predictions, it may seem that the only way to keep your business going is to reduce the size of your workforce.

Sadly, that could be your only option…

But, before you draw up redundancy plans remember; you can reduce your staff costs without losing jobs.

Here are five ways to keep staff costs down and keep your business profitable (plus what to do if redundancy really is your only option…)

1) Change employees’ terms and conditions

Reducing employees’ pay is the most obvious way to cut costs. That means either cutting staff salaries or reducing their working hours.

Another, less drastic option is to remove contractual schemes such as enhanced sick pay or maternity pay. This may not lead to an instant drop in overheads but will reduce your outgoings over the course of the year.

To implement these changes, you need a specific term in your employees’ contracts. If this doesn’t exist, you need to get your employees’ consent first.

Even if you do have the necessary contract terms, you should still follow a good procedure and seek agreement from staff first.

Contract negotiations can be tough, particularly when it comes to pay. However, when faced with the risk of losing their job or your business going under, your employees may be willing to make the sacrifice.

That sacrifice doesn’t need to be permanent either. When business picks up, you’ll have the chance to bump up wages and bring workers back full time.

2) Reorganise roles

Instead of cutting jobs, consider reorganising roles so employees deliver the most value to your business.

In some cases, job sharing may be an option. This is where one role is split into two and hours and salary is shared between two employees. Again, even if you have a contractual right to do this, you should still seek the agreement of your employees first.

On the other hand, there may be no need for certain roles. If not, consider if staff can pick up work in areas where there is more demand.

This is an effective way to get the most from your employees and fill positions without an expensive recruitment process. However, switching roles won’t be possible for everyone, even if they do have transferable skills. For example, an employee who takes customer service calls won’t automatically be able to take on a role in your telesales team.

3) Retract job offers

Recruitment ended abruptly for many businesses as a result of COVID-19. If you’ve already agreed to take on new staff, consider whether you still need them.

In doing so you need to be careful. If your new employee has already agreed to your offer, then withdrawing now is likely to be a breach of contract. Remember, verbal agreements are binding, too.

If you do need to withdraw an offer, the safest approach is to give your new employee a notice of termination and consider whether any notice pay is due. You may have to pay out in the short term, but you’ll avoid the risk of being taken to a tribunal for breach of contract.

4) Consider short-time working hours

Short-time working is where you reduce staff hours on a temporary basis. It’s a good option if you expect work to pick up again in the near future.

That’s because staff placed on short-time working for a period of four consecutive weeks—or six weeks in total in a thirteen-week period—can claim statutory redundancy pay.

(Note: a ‘week’ of short-time working will only count if you give your employee less than half a week’s normal pay. Staff only have the right to redundancy pay if they’ve worked for your company for at least two years.)

You need a term in your employee’s contract to put them on short-term working. If you don’t have this, the employee in question will need to agree beforehand.

5) Making layoffs

A layoff is where you don’t provide your employees with work or pay─often the last step before redundancy. 

You need a specific clause in the employment contract to allow layoff without pay. If you don’t have this clause, the affected employee must agree to a change in their terms and conditions. 

Even with this clause, laid-off staff who have been employed for at least a month may be entitled to statutory guarantee pay (SGP). This is currently £30 per day for a maximum of five days.

As with short-time working, laid-off staff can claim redundancy pay after being laid off for four weeks consecutively or six weeks in a 13-week period.

Redundancies: When no other option remains

When reducing the size of your workforce seems like the only way to stay profitable, it’s still advisable to explore every other option first. And not just to do what’s best for your staff…

Because if the worst happens and an employee takes you to a tribunal, a judge will expect to see a firm business case for why you had no choice but to make a role redundant.

The tribunal will also want to see that you’ve followed the correct redundancy process. Failure to do so could lead to you making a big payout to your former employee.

Need our help?

For further complimentary advice on redundancy from an expert, call us any time day or night on 0800 917 0771 or request a callback here.

Suggested Resources