Every business can go through a difficult patch and uncertainties surrounding trading following the UK’s exit from the European Union are no doubt exacerbating the problems in some sectors.
When financial pressures begin to take their toll, it makes sense to cut costs. Often, business owners think they have no choice but to make staff redundant, yet there are alternative courses of action that may offer a better chance of riding out the storm and contribute to the company’s long-term survival.
A complete ban on recruitment, along with natural attrition, will reduce the company’s headcount. However, make sure to build in a degree of flexibility. Be clear on circumstances in which recruitment is sanctioned in case you need to replace people in critically important roles who depart for pastures new.
No more contract workers
When taking steps to reduce the headcount, part company with agency workers, self-employed consultants and casual workers first. Before dispensing with their services check their employment status carefully and always adhere to any notice arrangements.
It’s a good idea to consider redeploying existing staff to reduce the headcount in quieter areas of the business and fill vacant roles in busier areas. Always consult with your workforce, make sure that employees agree to a move and offer appropriate retraining.
If your team regularly works paid overtime, assess whether you can reduce it or stop it altogether. First, check whether overtime is guaranteed as a contractual right because, if it is, employees must consent to any reduction or ban. If it’s customary for your workers to expect a minimum amount of paid overtime each week, then overtime may have become an implied contractual right. In these circumstances employees depend on the extra pay, so it’s vital to consult with them before deciding to reduce or stop overtime.
You cannot reduce an employee’s contractual working hours without their consent. If you do, you’ll likely face claims for constructive dismissal, unlawful deduction from wages and/or breach of contract. Staff will be more likely to agree to work fewer hours if they understand how serious the situation is and fully appreciate that your overall aim is to save jobs. Typically, employees will more readily agree to a reduced working week if it is a temporary measure for clearly defined period.
Flexible working arrangements can help to cut costs so it’s definitely worth asking if any staff members are prepared to apply for part-time work, job sharing and home working.
Another option is to offer staff a career break or sabbatical, whereby they take an unpaid leave of absence for a given period. As well as making savings on salary and benefits during this time you’re able to break continuity of employment whilst retaining valuable members of your workforce.
Cut or freeze pay and bonuses
Although employment contracts generally allow for an annual salary review, staff have no automatic right to a pay increase. If, after conducting a review, you decide to announce a blanket ban on pay rises, make it clear that there are important financial reasons for doing so. If you opt to cut pay, you must gain express consent from your workers as this represents a change to their contractual terms and conditions of employment.
Again, people are usually more willing to accept a pay cut if they know it’s only for a short period and appreciate that it will help to protect jobs. Where bonuses and other benefits are contractual, you will need agreement to reduce or stop them. If the arrangements are discretionary you must act in good faith if you choose to axe bonuses or to reduce the sum paid.
Laying off staff or short-time working, whereby employees work reduced hours or are paid less than half a week’s pay, is another way to stave off redundancies. However, such arrangements must be part of your team’s contract of employment and you must agree it with them first.
You may also be able to implement a lay off or short-time working if you can show that it’s been a widely accepted practice within your business over a long period of time or if you agree with employees to change their employment contract. During a lay off or short-time working employees are entitled to statutory guarantee payments and can take you to an employment tribunal if they do not receive them.
If your business is struggling and you’re seriously looking at how best to cut costs, the advice is to put employees in the picture and involve them in discussions at the earliest opportunity.
Whatever steps you take, always maintain some flexibility so that, if the company’s financial position improves, you can pull back from the arrangements.
To avoid the potential for disputes down the line, remember that measures which materially affect terms and conditions of employment, even if only temporarily, will require your team’s prior consent – in writing.