14 Sep 2020
With furlough due to end on 30 September 2021, many businesses are reviewing their current staffing structures to identify how to minimise their payroll costs. Whereas one option – redundancy – is being touted as inevitable by the media, what are the alternatives available to employers at this time?
So, let’s look at the options ...
As a business, if you are facing reduced demand for your products or services, the option to reduce overtime is one way of cutting payroll costs. Similarly, if you usually use agency workers to cope with increased workload, the decision to stop using agency workers can also reduce costs at this time. Alternatively, if additional hours are required, offer them to those who may be working reduced hours already or use them as an opportunity to upskill or multi-skill your team - this will provide you with greater flexibility and operational resilience moving forward
If you do have a need for staff to work extra hours but can’t afford to pay for those hours now, then a pay deferral or time off in lieu (TOIL) scheme may be an option. Although this may sound like a great idea, remember that you do have a legal obligation to ‘pay’ for those hours at some time in the near future. These sorts of scheme only work if there are clearly defined guidelines as to how many hours can be accrued in any pay period, when they need to be used by and how they will be paid, whether that is in paid time off in lieu or paid as wages when the employee has a worked less hours than normal within the period
If you haven’t got sufficient work for your existing team then a recruitment freeze is also option. If you do have genuine vacancies then opt for an internal recruitment process and tap into your existing talent pool or succession pipeline to fill those vacancies at this time without increasing existing headcount
Many employment contracts state that an annual pay increase is not to be expected – if this is the case in your business, then you can legitimately declare a pay freeze until after a set time or your next financial year. However, be aware that you will still need to comply with the statutory National Minimum/Living Wage requirements that come into place in the April of each year, so these need to be budgeted for
Although cancelling or altering discretionary benefit schemes may reduce employment costs, always seek advice before doing so. Employers may theoretically cancel or alter discretionary benefits as they see fit, but discretion needs to be exercised. Custom and practice must be taken into consideration too - for example, a discretionary bonus that has been paid, unchanged over the past 10 years may, due to custom and practice, become contractual (losing its discretionary status) - in this case a consultation process will need to be followed before changes can be made
Most alternatives to redundancy involve a variation to the employee’s contract of employment and a consultation will need to take place in order to implement them. Any consultation process needs to be ‘meaningful’ – it needs to involve a genuine, two-way dialogue that allows employees to have their ideas and suggestions fairly considered before any decision is made. A brief outline of any proposed changes should be laid out for employees at the beginning of the consultation process. The consultation itself then takes place – this may involve meeting with each employee individually or meeting with employee representatives (depending on the size of the business). The findings of the consultation are then reviewed before a decision is made and communicated to employees. The timescale between the initial briefing and the implementation of the decision is based on the size of the business, but for most small businesses (employing less than 50 people) a 30-day consultation period is considered best practice
As an alternative to redundancy, accepting reduced hours for a specified period may be something that the team can buy into. Whether that is a 20% reduction across the board, working a 4-day week or working a 6-hour day instead of an 8-hour day – whatever is reasonable for your business and team. Transparency helps – this option is perceived to be fairer if it’s applied to all. Also, define the proposed duration of this temporary change (e.g. to be reviewed in 3 or 4 months) then, a month before the review period is due, re-assess the situation – can hours go back to normal or will the period of reduced hours need to be extended for a short period following further consultation?
Another option is redeployment – moving employees from quieter areas of the business to areas where there is greater need. Again, this can either be a short-term redeployment for a finite period or a more permanent move to fill a vacancy in another area of the business
A secondment is were an employee is temporarily ‘loaned’ to another division or company and is an ideal way to increase or develop an individual’s skill set. The payroll costs for this employee are covered by the division or company that the employee is loaned to. You may ‘loan’ your employee to a key client, enabling the team member to get a clear understanding of that client’s business / business needs. Or you may want your employee to utilise their skill set in working a specific project within another business. Again, the timeframe and scope of the secondment need to be clearly defined – who the secondee reports to, what they are expected to do ... and what they should not do. Confirm who will support them during this period of secondment if there are any concerns or issues (even if they are working for someone else, the team member still remain your employee; their continuous employment still accrues throughout the secondment)
Changing contractual benefit terms – if benefits such as bonuses, overtime or other enhanced benefits are contractual (e.g. detailed in an employee’s terms and conditions of employment), then it’s important to clarify what changes you are proposing to make to these terms and how long the change will be in place. You must also ensure that any changes comply with statutory requirements (e.g. the employer's pension contribution should not fall below 3%; holiday entitlement should not fall below 5.6 weeks, etc). If this change is temporary, gaining your employee’s buy-in for the short-term is essential however, if the change is permanent, you may need to buy-out your employees from these enhanced terms and compensate them for the loss of these benefits. This is another area where it is worth seeking advice before proposing any changes
If redundancy is inevitable, then voluntary redundancy may be preferred to compulsory redundancy – there may be people within your business that would welcome this option. However, they may be the people you would prefer not to lose - they may have longer service or have specialist skills sets that are harder to replace. Those requesting voluntary redundancy still need to go though consultation before you make your decision; the costs may be higher, but this option can be less disruptive on the whole team than compulsory redundancies are
In my experience, when times are tough – like now – most of your employees will be aware that some changes may need to be considered. They will also want to protect themselves and their colleagues, avoiding redundancy where possible. By being open with your team and by asking for their input in how the business can keep working at times like this, most will be supportive; they may also have ideas and suggestions that you may not have considered
Whilst a consultation process my sound scary, genuinely involving your team and getting their buy-in could be a saving grace for you and your business
For more information on any of the options covered above, please get in touch
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Ivanhoe Financial Planning