Redundancy – Is there another way?

9th October 2020

Whilst some businesses have bounced back after the initial lockdown, others are seeing more long term challenges to their operations.

For some employers, redundancies may be the only option to keep the business viable and secure the long term future. However, there are many other possibilities for companies to consider. Options which retain a skilled workforce for the post-Covid world can put employers in the best place to be fast out of the blocks when the situation stabilises.

Reduced hours or pay cuts

The most obvious way to reduce salary costs is ask employees to accept temporarily reduced hours and/or pay. Where appropriate, the new Job Support Scheme may be used to make up some of the lost salary and hours, but for other employers a straightforward reduction may be more economically viable.

In a poor job market, and with many employees having additional personal obligations (for example, where childcare is limited or closed), this can be an arrangement that suits both parties. If this option is being considered, removing restrictions on second jobs (except with a competitor) can allow employees who need to do so to pick up additional work elsewhere.

It is also possible to agree temporary pay cuts with staff, although many will resist such a change without a reduction in hours.

Agency staff and temps

An obvious step in many companies is to end contracts for temporary and agency staff. These contracts will often be terminable on short notice and at minimal cost. Although this does result in losing workforce capacity, companies can recruit again quickly when the situation improves.

Pay deferral by senior leaders

A pay deferral by senior leaders can be a great way to boost morale, save money and motivate staff to ‘go the extra mile’. Private companies can do this fairly easily, with the Board given authority to pay the deferred amount at their discretion in the future when finances improve. It tends to work best in smaller companies, where the savings needed are smaller, or, in the largest companies, as part of a package of measures to help secure workforce buy-in.

Changing terms

Although employees can come to expect overtime, changing overtime can be a good way of temporarily reducing costs. This can either be because the additional work is not needed, or by moving the overtime onto standard rate rather than 1.5 or double time.

If a company normally has generous benefits – for example, insurance or pensions contributions well above the statutory levels – temporarily reducing these can also be a good way to reduce overall payroll costs. As they do not impact upon each month’s take home salary, employees are often also more willing to absorb the temporary loss.

Sabbaticals and other creative options

In the 2008 downturn, some large city employers made effective use of unpaid sabbaticals to temporarily reduce salary costs. Unlike 2008, employees in 2020 will not be able to travel the world with their free time, but you never know who might be burning to write a novel, or, more practically, have caring responsibilities which they want to focus on fully.

Another option which worked well in 2008 was the use of internal and external secondments. Many businesses are finding that the impact on their industry is uneven, with some departments or clients busier than ever. If resources can be temporarily reallocated to where they are most needed, it can both ease the financial burden and upskill the workforce.

The practicalities

Changes to employees’ working arrangements generally require consultation and agreement – do take advice so that you handle the process in the right way and to the benefit of your business.

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