An increasing number of businesses are considering redundancies as a cost-saving measure. While many analysts are suggesting that the worst of the current recession is behind us, businesses across the country continue to feel the pinch.
Redundancy is seen by some as a simple panacea for a company’s financial ills. Indeed, the reasoning behind this is fairly sound - personnel costs account for many businesses’ biggest expenditure, so cutting those costs seems to make sense.
But it is important to remember that redundancies are frequently among the least efficient cost saving measures. There are a number of reasons for this. To begin with, you are likely to have to pay the employees some sort of redundancy settlement, which can put further pressure on an already constricted cashflow.
Furthermore, many business will find themselves with fewer staff to complete the same amount of work. Even if the volume of work has fallen in the short term, when your business starts to recover you will need to rehire, and this can be hugely expensive.
As such, redundancy is frequently not the best option for businesses looking to cut costs in the short term. You should always investigate the alternatives to redundancy first.
Bonus cuts, overtime bans and pay freezes
If you are looking to cut your personnel costs, bonuses must be the first to go. Aside from the expense itself, bonuses paid to one part of the workforce while another part is being laid off will be disastrous for staff morale, further reducing the productivity of your company. Before even thinking about redundancies, therefore, you should make clear that no bonuses will be paid until a recovery is seen.
You may also wish to consider banning overtime. Overtime is frequently paid at a higher rate than regular work hours. Instead, you should try to communicate to your staff that they will need to be more productive during their standard work days, rather than relying on overtime.
Pay freezes should also be seriously considered. Many companies review their pay agreements annually, with salaries rising in line with inflation. Luckily, if this is the case in your business you have a perfectly valid ‘excuse’ for instituting a pay freeze. Because inflation has dropped to below 0%, by precedent you could actually start cutting wages. Either way, employees are more likely to accept pay freezes if it is demonstrated that redundancy is the alternative.
Short time working
If you have experienced a drop in your workload, you might well have staff without enough work to fill their days. In these cases, rather than making them redundant, with all the costs that entails, you might consider asking some employees to change to a part-time working arrangement.
Although employees are likely to be unhappy about having their working hours and therefore their pay reduced, if the idea is well communicated by business managers staff will almost certainly see that it is preferable to redundancy.
Sabbaticals are a similar option. Indeed, sabbaticals are frequently more popular with staff as, although they are unpaid, they give employees the opportunity to find other work in the interim. Several car manufacturers adopted both of these practices earlier this year and the principle remains the same regardless of the size of the company.
If your business is suffering from an imbalance in resources - that is, you have too many employees in one area of the business and too few in another - you should consider redeployment as an alternative to redundancy.
This is usually only possible in certain circumstances; if both jobs require unique skill sets, redeployment will probably not be an option. However, where it is possible it can drastically reduce your recruitment costs and increase morale amongst your workforce.
Training employees in new skills is much cheaper than redundancy and your staff will benefit from it too.
It should also be remembered that businesses have a legal responsibility to consider redeployment in cases of collective redundancy, where 20 or more employees are to be made redundant.
Reduction in employee benefits
Finally, some companies choose to cut employee benefits back to a bare minimum in order to reduce costs. This might involve reducing pension contributions and ending schemes like employee interest free loans. However, if you are considering this it is worth remembering that the potential cost savings here are negligible - but that the impact on employee morale can be significant. Unhappy employees don’t work as hard and an unproductive workforce is only likely to exacerbate your problems.
Businesses across the country are considering redundancy, and many will continue to do so long after the economy has recovered. However, before beginning the process of redundancies, you should consider the significant downsides. Understaffed companies are poorly placed to take advantage of an upturn, and will only have to pay huge recruitment costs again in the future. Where possible, you should always look elsewhere for cost savings first.