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Cost Cutting – Is Redundancy The Only Option?

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At some point in your business you may decide you need to cut your business overheads.  There may be many reasons for this: loss of a large customer; a slowdown in sales; new competition; increased business costs – even a global pandemic! 

A quick way to cut your losses may be to reduce your employment costs.  Some job cuts might save salaries, benefits, employment costs like tax and National Insurance.  You could save on training costs, sick pay, holiday pay.  This can seem attractive, but is redundancy the only option?

Redundancy is never a cost-effective solution

Making staff redundant is never a short-term solution to your financial difficulties.  It is expensive in so many ways.  The redundancy payments themselves can be costly, particularly if your employment contracts offer an enhanced redundancy package. On top of that, you also have to pay notice periods, or pay in lieu of notice. 

There are other costs, which may not be immediately obvious.  Things like the management time needed to plan, prepare and carry out a redundancy programme.  Or the unsettling effect on the remaining staff, which will surely lead to a drop in productivity.  

This just skims the surface of the costs involved.  I could write a whole different article on redundancy costs alone.

Redundancy is a real negative for your Business

Redundancy is expensive and hugely time-consuming.  It means letting go of employees in whom you have invested and they might be hard to replace in future.  It usually has a negative impact on the remaining workforce.  It is very bad publicity.  It can lead to legal challenges unless handled carefully.

If your business has an uplift in the future and you need more people, you may not be able to recruit again straight away. Even if you can, the people who were redundant may no longer be available or willing to return.  If you can recruit, you will have the cost and the need to train up new staff. 

So is redundancy the only option?

It is not, of course, the only answer.  It may seem to be the simplest and cheapest way to cut costs. But you might find it very instructive to look at alternatives before you commit to redundancies.

Firstly, you will need a thorough understanding of your business financials to assess whether redundancy is the only option or  if other cost reductions could be made instead to mitigate the need for redundancy.

Consider the following:

  • Are there any other roles within the business which those who would face redundancy could fill?  You may already have approved vacancies, or it may be that managers were at the stage of considering whether they needed to recruit an extra person.  This can also include retraining staff to do different roles.
  • Can you implement a recruitment freeze? It seems perverse to be recruiting while you are letting staff go elsewhere. Review current and forthcoming vacancies and pare them down to the bare minimum (zero, if possible – at least temporarily).
  • How can you maximise staff flexibility as an alternative to recruiting staff who would need to be made redundant at a later date?
  • Can any of the work be adapted, or dropped (temporarily or permanently)?
  • Can you recycle, reuse or repair furnishings, equipment, tools instead of renewing them to save costs?
  • Can you make reductions in costs such as non-essential travel; company vehicles; subsidised cafeteria, etc
  • Are there any grants or incentives available from the Government or elsewhere that could help you through a sticky financial period?
  • Can you limit the number of contractors  and agency staff you are using\/ Are they doing work which could be carried out by an employee instead?
  • Could you offer your employees an option similar to the government’s furlough scheme during the global pandemic? For example, you could you offer to pay them a percentage of their salary (the government’s scheme was 80%) for a period during which they don’t do any work. This might seem costly – to pay people not to work – but it reduces your costs and  keeps them on your payroll.  It might be viable for a short-term period.  Beware though, there are legalities and it  has to have been agreed upon with employees beforehand.
  • Other alternatives might include offering sabbaticals, reduced hours/working days or salary reductions, and looking at secondment or redeployment opportunities.  For a small business, this could even be done in conjunction with your local competitors – collaboration on staffing issues can help you both.
  • Communicate and consult with your employees as they might have ideas. They have a vested interest in helping you to save their jobs. 

This list is not exhaustive.  Get creative – there may be other things you can do to avoid some or all of your redundancies. 

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Jill Aburrow - HR Consultant

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