Reducing Costs and Retaining Talent: Alternatives to Redundancy

In times of crisis and economic uncertainly, many business owners are under pressure financially and may need to consider ways to reduce costs. Particularly in innovation and knowledge-based businesses, whilst people are often the highest outgoing on the balance sheet,…


Blog24th May 2020

In times of crisis and economic uncertainly, many business owners are under pressure financially and may need to consider ways to reduce costs. Particularly in innovation and knowledge-based businesses, whilst people are often the highest outgoing on the balance sheet, they are also your greatest asset. Although lowering headcount may seem like a ‘quick fix’ when under pressure to cut cost, redundancies should not be seen as an inevitable part of the process and it’s important to consider this as part of a bigger picture exercise.

Redundancies will undoubtedly have a negative impact on morale and (depending on how communications and the process have been handled) potentially on an employer’s ability to regain its competitive edge when the market picks up. There are no easy answers, and some level of workforce reduction may ultimately be inevitable. However, you’ll want to consider every possible option before choosing to make redundancies, and be in a position to outline and communicate to any affected employees (and the wider team), what alternatives were explored first.

Below is a list of practical cost-cutting alternatives.

Furlough leave

Under the Coronavirus Job Retention Scheme (CJRS), the Government will step in and help pay the salaries of employees who would otherwise be laid off without pay or made redundant. Under the Scheme, any such employees are “furloughed”, i.e. only temporarily laid off. According to the latest figures from HMRC at 4th May, a total of 6.3m UK jobs have been furloughed – 23% of the workforce.

Voluntary pay cuts

Ask employees if they will accept pay cuts.  The pay cuts do not need to be permanent but could be based on a percentage pay cut for a period of four, eight or twelve weeks with the agreement to review the cut on an ongoing basis (ideally aligned to achievement of relevant milestones). Pay reductions should be led by management who therefore accept cuts themselves. Deferrals of salary and bonus/commissions is also an option. It’s important to follow a fair and transparent consultation process and document your employee’s agreement as a paper trail.

Short-time working

There is another option if you need some or all your employees to work, but on reduced hours.  Remember, furloughed employees cannot do any work for the organisation.

If your contracts of employment contain a layoff and short-time working clause, this may allow you to require that employees work part time or flexible hours with a commensurate reduction in pay and benefits.

Reduction in working hours

Where there is no layoff and short-time working clause, you can consult with your staff to explain how the situation is impacting the business and propose they agree to a temporary reduction in working hours or part-time or flexible working arrangements to protect the future of the business and their employment. Such changes would have a commensurate reduction in pay and benefits. Talk to your employees as you may find in current circumstances this could be a suitable compromise to support other commitments.

Hiring freeze

Freeze recruitment for all non-essential positions. This allows you to consolidate the employees you have to complete the work that is essential for generating revenue.

Voluntary sabbaticals

Consider whether employees may be interested in taking voluntary unpaid sabbaticals and promote the option to do this.

Suspend discretionary benefits

Consider whether any non-contractual and non-implied company benefits can be stopped in the short term. Companies that contribute to enhanced pension plans and insurance policies or offer perks such as gym memberships and childcare can consider temporarily suspending these benefits. Overtime and bonuses can also be put on hold, where terms allow.

This needs to be managed carefully as in some circumstances a benefit may have become contractual.

Eliminate non-essential spending

Seek ways to operate as lean as possible by cutting all spending that’s not essential to operations – and even cutting non-essential operations to simplify processes and ways of working.

Involve your employees

Ask your team if they can come up with any innovative ways of reducing costs whilst avoiding redundancies. Even if the employees are not able to formulate any ideas, by involving them in the process and being honest and transparent, they are likely to feel a greater sense of engagement and may therefore be more open to some of the options.

Conclusion and considerations

Companies undoubtedly face difficult decisions in challenging times, but how you treat and communicate with your people through these, and live your values, will be remembered. Empathy, compassion and respect, coupled with thinking for the long term are key.

If you’ve considered all the alternatives but still find that a workforce reduction is necessary, then you’ll have to plan carefully for how to implement the redundancies. Qualified professional advice should always be taken before any changes to terms and conditions, or indeed any redundancies are envisaged.

These decisions are never easy but, at the very least, you can show your employees that you have considered every possible alternative.

For practical advice and support with any of the above cost reduction strategies for your businesses, contact the AAB People team.

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