Avoiding redundancies

You know you have to cut staff costs, but do you always have to make redundancies? Are there other ways?

It can sometimes make better economic sense to keep employees even where cost-cutting is needed. Why? Because the loss of their collective experience and knowledge, and the loss of client connections, can be significant. Not to mention the cost of recruiting when business picks up again.

For example, some employees may be happy to take a leave of absence, or not return from furlough, and — rather than make them redundant — it could be worth exploring options such as unpaid sabbaticals or using unpaid statutory parental leave. That way they can remain employed without pay until the situation improves.

Alternatives to redundancy are also sometimes suggested by employees themselves during a redundancy process. In this situation, the employer needs to show a good reason to justify not accepting them if they avoid redundancies and make the necessary cost savings.

Recruitment freeze and withdrawing job offers

A good place to start when looking for alternatives to redundancy is a recruitment freeze — simply not recruiting anybody and taking advantage of natural wastage. This saves on recruitment costs, and existing staff can be retrained.

Linked to that is withdrawing job offers. If the offer hasn’t been accepted, then it can be withdrawn without cost to the employer. If it has been accepted, then withdrawing can expose the employer to making a small payment, but it’s usually only that for minimum notice.

And don’t forget the middle ground, which is to defer new starters.

Lay off and short time

Both lay off and short time (LOST) used to be popular in the 1960s and 1970s, went out of fashion in the 1980s, and came back in the 2000s as professional service firms realised they might not need all their staff all the time.

Lay off is where an employment contract gives an employer a right to stop giving work to an employee for a while, and not pay them. Short time is where an employment contract gives an employer a right to reduce someone’s working hours to less than 50%, and dial down their pay accordingly.

The lay off or short time clauses have to be in the employment contract — if it’s not expressly in a contract, it’s very difficult to imply a right to lay someone off or place them on short time.

LOST only works as a temporary solution and it can’t be used as an alternative to redundancy, or a way to avoid making a redundancy payment. It's purely a useful way to temporarily reduce the wage bill without having to dismiss, pay notice or redundancy payments.

Reducing working hours or salary

You can reduce the number of hours or days employees work, with a pro rata reduction in salary. This works well to reduce costs without making compulsory redundancies — a common example, if the workforce agrees, is to move to a four-day week. You can also think about job sharing, which allows two or more people to fill one job role. The benefits include saving payroll costs and encouraging training and teamwork.

In all cases, you normally need the employee’s agreement — you can’t just impose the changes.

Another option is to ask employees to defer some or all of their pay. For example, you can ask your employees to agree to defer — say — 50% of their salary for six months, at which point you can agree to pay them the deferred salary over a further, say, 12-month period. It's fairer than asking them to take a pay cut, and it also helps with short-term cashflow problems.

Voluntary redundancies

Of course, voluntary redundancies aren’t a way of avoiding redundancies. But they are a way of avoiding, or at least reducing, compulsory redundancies.

If there are sufficient volunteers then you’ll avoid the selection process, which can be stressful and upsetting for all affected employees, and you also reduce the risk of legal proceedings. Some employers offer enhanced packages to volunteers to help avoid having to implement compulsory redundancies.

I look in detail at voluntary redundancies in Module 10.

Other approaches

Here are a few more ways to avoid or minimise redundancies:

1. Retraining: can you retrain staff in one department where redundancies need to be made to fill vacancies in another department?

2. Lay off casual workers and agency staff: this is an effective — and often cheaper — alternative to redundancy. Dialling zero-hour workers’ hours back to zero achieves much the same outcome.

3. Offer home working in exchange for a reduction in salary: many people would love to avoid the commute, to set their own hours, and work from home. They might be very happy to trade the improvement in their quality of life for some of their salary.

4. Early retirement: you can sometimes offer this under a pension scheme to those who volunteer for redundancies. It is important to make sure that retirement is indeed voluntary, or it could amount to dismissal giving rise to potential claims — in particular age discrimination.

Here are my three top tips for avoiding redundancies and still making savings...

1. Ask employees to suggest alternatives — you may be surprised!

2. Invite volunteers to step forward, maybe in return for an enhanced package

3. Explore reducing hours, salary, or offering unpaid sabbaticals.