Cost Cutting – Is Redundancy The Only Option?

At some point in your business you may decide you need to cut your business overheads.  There may be many reasons for this: loss of a large customer; a slowdown in sales; new competition; or – at present – a global pandemic!

A quick way to cut your losses may be to reduce your employment costs.  Some job cuts might save salaries, benefits, employment costs like tax and National Insurance.  You could save on training costs, sick pay, holiday pay.  This can seem attractive, but is redundancy the only option?

Redundancy is never a cost-effective solution

Making staff redundant is never a short-term solution to your financial difficulties.  It is expensive in so many ways.  The redundancy payments themselves can be costly, particularly if your employment contracts offer an enhanced redundancy package. On top of that, you also have to pay notice periods, or pay in lieu of notice.

There are other costs, which may not be immediately obvious.  Things like the management time needed to plan, prepare and carry out a redundancy programme.  Or the unsettling effect on the remaining staff, which will surely lead to a drop in productivity.

This just skims the surface of the costs involved.  I could write a whole different article on redundancy costs alone.

Redundancy is a real negative for your Business

Redundancy  is expensive and hugely time-consuming. It means letting go of employees in whom you have invested  and who might be hard to replace in future.  It usually has a negative impact on those staff that remain.  It is very bad publicity.  It can lead to legal challenges unless handled carefully.

If your business has an uplift and you need more people, you may not be able to recruit again straight away. Even if you can, the people who were redundant may no longer be available or willing to return.  If you can recruit, you will have the cost and the need to train up new staff.

So is redundancy the only option?

It is not, of course, the only answer.  It may seem to be the simplest and cheapest way to cut costs. But you might find it very instructive to look at alternatives before you commit to redundancies.

  • Firstly, a thorough understanding of your Business financials. Is redundancy really the only option, or are there other reductions in cost which could be made instead to mitigate the need for redundancy?
  • Can any of the work be adapted, or dropped (temporarily or permanently?
  • Can you recycle, reuse or repair furnishings, equipment, tools instead of renewing?
  • You might look at reductions in things like non-essential travel; company vehicles; subsidised cafeteria, etc.
  • Are there any grants or incentives available from the Government or elsewhere which might help you get through a sticky financial period?
  • Your employees might have some ideas, so communicate and consult with them. They have a big interest in helping you to save their jobs.
  • Before you make employees redundant, look at limiting the number of contractors and agency staff you are using. Are they doing work which could be carried out by an employee instead?
  • The Government’s furlough scheme during the global pandemic is coming to an end, but could you offer something similar to your employees? This keeps them on your payroll, but reduces your costs.
  • Other alternatives might be to offer sabbaticals; to offer reduced hours or reduced working days; offer a salary reduction; look at secondment or redeployment opportunities

This list is not exhaustive and there may be other things you can do to avoid some or all of your redundancies.

If you think this article is useful and you would like to talk more about dealing with redundancy, – please join our mailing list, or contact us for further guidance.