Employment costs under review

Employment costs under review

With businesses looking for opportunities to reduce costs, what should employers consider when the economy suffers a downturn? There are a number of steps which an employer should take before beginning a costly and emotional redundancy procedure. These include a reduction on overtime, a freeze on recruitment and early retirement. These steps should help an employer to reduce payroll costs and could prevent the need for any redundancies at all.

Reduction on overtime

Employers should first look to see how much overtime is being carried out and whether this can be reduced or eliminated altogether. If there is a limited amount of work then it should be spread evenly throughout the workforce, thereby reducing the need to make individuals redundant.

Freeze on recruitment

It may seem obvious but employers should cease to take on new people, or at least restrict any recruitment to absolute necessity, if they wish to save costs. Taking on new people is costly in terms of time and money spent on the recruitment process itself and training the new recruit. Although there will be no right to a redundancy payment until an individual has been employed for two years, he or she may have other claims such as unfair dismissal or discrimination.

Retirement

Some members of the workforce may be coming up to retirement and some may wish to take retirement early with all their pension rights still intact (or even enhanced). If an employer needs to save costs it may be a good starting place to ask for volunteers for early retirement. Of course, those who retire should not be replaced if the employer genuinely needs to cut costs.

Voluntary redundancies

Employers may find that some members of the workforce would be willing to take voluntary redundancy. Employees should be informed what the basis of the redundancy package would be and asked whether there are any volunteers on that basis. Employers may offer an enhanced redundancy payment or extra pension entitlement in exchange for agreeing to a voluntary redundancy. One problem with this course of action is that the “wrong” people may come forward for redundancy, in many cases the good people whom employers would rather not lose.

It is important to handle any employment restructuring with care, please contact Alistair Wells.

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.