Businesses are facing rising costs, such as increases to employer NIC and the National Minimum Wage, and are therefore seeking ways to increase profits or reduce losses. As the employee wage bill is generally a business’s largest expense, redundancy may seem like the best solution to reduce business expenditure quickly. However, losing employees can harm morale, damage reputation, and make it hard to recover talent later.
Alternatives that support long-term success include:
Reducing Workforce Size
A simple way to start reducing employee levels is to stop hiring new employees and put a freeze on recruitment. This lets the team shrink naturally over time as people leave. It’s easy to do and usually doesn’t cause legal issues. However, if the business looks to hire or promote someone during the freeze, especially if redundancies are happening, you could face legal risks, so it’s important to be cautious and have reasonable justification for the change.
For new hires that have recently been offered positions within the business, their offers of employment could be withdrawn. If withdrawing an offer of employment, the contractual term around notice should be checked to see if notice pay is required and ensure any obligations are met.
Secondments for employees to other organisations could help reduce headcount and give the employee valuable experience within another business or sector. Timeframe for the secondment should be well considered as if the secondment is too short this may not help the business situation and too long could be a problem if workloads increase.
Some businesses may offer early retirement to employees. This must be completely voluntary to avoid legal issues like unfair dismissal or age discrimination. A possible downside is losing experienced team members.
Temporary Arrangements
Sabbaticals or unpaid leave may be a viable option if the business faces quiet periods of work. Employees may also be willing to use up their holiday allowance during quieter periods.
Layoff and short time working clauses can support a business during temporary downturns. These clauses allow the business to temporarily reduce hours or wages without immediately resorting to redundancies, offering a potential lifeline during difficult times.
Reducing Hours
Employers may look to reduce employee working hours, either temporarily or long term. Employees are more likely to agree if the financial situation is explained and it's clear this could help avoid job cuts. Employers can also suggest part-time or flexible working. Any agreed changes should be put in writing.
Overtime bans can be used if employees don’t have a right to overtime in their contracts, or if they agree to the change.
Reducing Pay
The business can consider reducing pay to cut costs. This could include freezing salaries, cutting benefits or bonuses, or changing pension arrangements. However, these changes must be discussed with employees, and their agreement should be sought to avoid complaints, legal issues, or resignations.
Non-contractual benefits such as employee assistance programmes or discounts could be removed without consent, the business should be mindful of the impact this may have on employee morale, especially if the benefits are well used.
Communicating with Employees
When making any decisions that will impact employees negatively, being open, honest and concise with employees early on is the best approach. Most people will want to keep their positions and are likely to help find workable solutions to difficult situations. Keeping employees on board is important for staying flexible if business picks up again.
Varying Contractual Terms
Any changes to employment terms should be documented through a written agreement or a new contract. This information should ideally be given to employees within one month of the change taking place.
Conclusion
Redundancy might seem like a quick fix for financial challenges, but it’s not always the best or only option. Before taking that step, businesses should explore other available alternatives. These can help protect employees and put the business in a stronger position to recover when conditions improve.
