Seven cost cutting ideas prior to redundancies

1. Talk to staff about the need to cut costs

If there are rumblings and rumours about the loss of clients, a downturn in the business, etc. then do not shy away from discussing the situation with staff. Talking to staff and asking for their ideas is a good way of getting them involved in the process and “on side”.  It is quite acceptable to ask them about possible ways to cut costs, or for ideas they have that will make them more productive.  You may be surprised with the response.

If you handle it carefully and are positive about the situation, then the company will be better for it in the long run as staff will see that you are trying to look after them.  This will build loyalty and commitment for the future; for when we emerge from these turbulent times.

2. Sabbaticals

If you need a short term boost to ease cash flow, try offering a sabbatical. Does anyone in the company have a lifelong ambition to travel around South America, visit relatives in Australia or undertake a full time training course to learn a new skill or hobby? If so, by offering a sabbatical, they get to fulfil their burning ambition and you save on their employment costs in the short term and retain good employees over the longer term – a win-win solution for both parties.

The idea is that the employee goes off and pursues a dream and you keep a job open for when he or she gets back. Large companies usually offer this benefit to employees on a paid based, but in hard times, you may find employees with life long ambitions to have, say, 6 months off, might be prepared to go unpaid.  You could even offer a small inducement of an amount much less than the redundancy cost.

3. Short term working

If there is not enough work to go around you could talk to staff about reorganising the work you do have, so that it expands it fill the gap. This does not mean working half as fast, for the same money.  It means getting employees to work fewer hours each week for a proportionately smaller income and making the project last over a longer period of time.  That way you can keep hold of good staff and they retain a job, albeit at a lower income.

For example, 20 employees on £20,000 p.a, working half an hour less a day, for 8 weeks would give a cost saving of £4 - £5,000 – it might not sound much but it could make all the difference to your cash flow in the short term.

4. Lay offs

Whereas short term working tends to be a temporary arrangement when work is still available, lay offs are usually appropriate when there is no work on a particular day(s).

In order to be able to lay staff off there needs to be a clause in their contracts of employment allowing you to temporarily lay them off, for a short period of time.  It is even better if this clause says that you can lay them off without any pay.  There are certain rules about lay-offs and minimum periods of guaranteed pay which you need to be aware of, so give us a call if you want to discuss this option.

5. Re-organising work amongst staff to get the best out of them

The last thing you want in the current climate is people not doing what they do best.  For example, be careful not to let your sales staff get bogged-down with completing paperwork when they could be out selling. Re-organising their work and getting someone else to do the paperwork, might be more efficient and effective.

6. Salary sacrifice options

Salary sacrifice options can give cost savings to both employees and the companies. Under these options, an employee gives up part of pay and it is replaced by a tax efficient benefit. Salary sacrifice schemes can be used to provide a range of benefits including pensions, childcare vouchers, buying extra holidays and bike to work schemes. 

As the pay that is ‘sacrificed’ would previously have been subject to tax and NIC then usually a saving in NIC is available to both the employee and the company. For example, an employee giving up £1,500 under an approved salary sacrifice scheme would save £165 p.a. whilst the company would save £192 p.a in NICs.

Great care is needed to implement salary sacrifice properly if the savings are to be effective.  Call us if you are interested in this opportunity.

7.Review employee benefits offered

Review the benefits that are offered in your employees contracts of employments as it may be possible to withdraw those that are non contractual or, if that is not possible, to down grade the benefit or source an alternative, and cheaper supplier. 

If neither of these options is feasible, due to contractual arrangements, if you explain to employees the situation the company finds itself in and the need to reviews cost, they may agree to the withdrawing or a reduction in the benefit offered anyway.

Please bear in mind that none of the above suggestions can be implemented without the employees’ agreement otherwise you may end up facing an employment tribunal claim.  

In2HR
1 Jones House
High Street
Bray
Berkshire
SL6 2AH
Tel +44 (0) 1628 622722

We can help you hire and retain the best employees, manage your employees more successfully, and improve employee motivation. Whatever your HR outsourcing needs, In2HR can assist any company within the Thames Valley areas, including Berkshire, Buckinghamshire, Oxon and Surrey. So why not contact us today.