Five ways to cut staff costs without redundancies

Kate Palmer - HR Advice and Consultancy Director

June 23 2020

With the UK gradually coming out of lockdown, businesses across the country face an uncertain future.

Economists warn of recession. Virologists warn of a second wave. And business leaders in industries from hospitality to oil and gas warn of mass redundancies.

With all the dire predictions, you might think that the only way to keep your business going is to reduce the size of your workforce.

And you’re right. That might be your only option…

But before you start drawing 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 staff terms and conditions

The most obvious way to cut costs is to reduce how much you pay your employees. 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 make these changes, you need a specific term in your employees’ contracts. If you don’t have this, you need to get your employees’ consent first.

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

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

And that sacrifice doesn’t need to be permanent. When business picks up, you’ll have the chance to bump up wages and bring back workers on full hours.

2) Reorganise job roles

Rather than cutting jobs, consider reorganising roles so people deliver the most value to your business.

In some cases, there may be options for staff to job share. This is where you split one role into two and share the hours and salary between two employees. Again, even if you have a contractual right to do this, you should still seek the consent of your employees first.

Or, if there’s no need for certain roles, 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 people and fill positions without a costly 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 instantly be able to take on a role in your telesales team. Likewise, waiting staff won’t necessarily know their way around a kitchen.

3) Withdraw job offers

The COVID-19 crisis has put a stop to recruitment for many businesses. So, if you’ve already agreed to take on new staff, think carefully about whether you still need them.

However, you need to be careful here. 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) Implementing short-time working

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 soon, but it’s only a short-term solution.

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. And 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 staff’s contracts to put them on short-term working. If you don’t have this, your employees will need to agree beforehand.

5) Making layoffs

A layoff is where you don’t provide your employees work or pay. It’s 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, your staff will need to 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 there’s no other option

Sometimes, reducing the size of your workforce is the only way to stay profitable. But you still need 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 pay out to your former employee.

None of this is easy. Contract changes and redundancies are among the most complicated areas of employment law.

That’s why Peninsula clients enjoy access to 24/7 HR support from our team of experts to help them through their toughest business choices.

And if you’re not yet a client, don’t worry. You can still claim an expert advice call for instant help on how to reduce staff costs post-lockdown. Click here to claim your advice

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