8 ways to save staff costs without making redundancies
This is part one of our Cost Savings Guide where we explore different ways to cut staff costs without considering redundancies. Part two will focus on the redundancy process itself.
The tough economic climate means that many businesses are reviewing their operational costs, and difficult questions are being asked about where efficiencies can be made, and what resources can be cut.
In these situations, businesses will often first consider whether it can restructure with a view to making redundancies to save costs. Whilst redundancies may be the right option for a business, it is important to consider the potential drawbacks of redundancies. In particular, and as we have seen since the pandemic, many employers made redundancies during the pandemic and are now faced with skills shortages and an inability to recruit people with the right experience.
Our top tips:
1. Retaining your staff
It may appear counterintuitive to talk about retaining staff in a note about saving costs, however, whilst staff are often a business’s most expensive overhead, they can also be a business’s most important asset. It is therefore worth considering whether it is possible to take any of the following steps to try to retain your staff. Taking these steps early on may save you significant time and expense later down the line in terms of recruitment and training.
Hybrid and flexible working arrangements
Many employees enjoyed the ability to work more flexibly during the pandemic and it is clear that having had this flexibility many employees want the option to continue to work flexibly. Being able to offer some flexibility to staff is a cost neutral benefit which could assist in retaining and potentially attracting staff.
It is therefore worth considering what, if any, flexibility in terms of working arrangements you are able to offer within your organisation. This could be remote working, a hybrid working arrangement or even the ability to work from abroad for a limited period of time.
If you are able to offer flexibility around working arrangements, then it is advisable to have a hybrid working policy in place to manage the arrangement effectively.
Health and wellness initiatives
Health and wellbeing is something which is increasingly important in today’s fast paced working world. The pressures of work can at times be very stressful and acknowledging this and offering assistance to employees to combat this can help set you apart from other organisations. Many employees are looking for employers who value their employee’s wellbeing and have initiatives to promote health and wellbeing within the workplace.
It is advisable for companies to have a holistic framework in place to support employees’ physical health and safety, and mental health, and offer sources of help such as counselling, an employee assistance programme and occupational health services where possible.
Companies should ensure that line managers have the ongoing guidance needed to support their teams, so they can have sensitive conversations with individuals and signpost to expert help where needed.
CIPD’s Health and Wellbeing Survey 2022 identified the top three benefits of employers increasing their focus on employee wellbeing:
- A healthier and more inclusive culture
- Better work-life balance
- Better employee morale and engagement
Promoting diversity and inclusion
Research has shown that people want to work for employers with good employment practices, and they want to feel valued at work.
It is important to have fair and transparent diversity and inclusion policies in place and to ensure that the culture of the workplace reflects this to foster an environment where everyone feels valued, mutually respected, and where their contribution is recognised.
Flexible working and job design are also important components of diversity strategies and part of attracting and retaining a wide pool of talented people who perhaps are unable to fit into the regular 9am – 5pm mould.
Being open to diversity allows a company to seek out the best talent, which can lead to more creativity, productivity, engagement and better results for the business.
Upskilling, apprenticeships and tapping into local talent
To future proof your business, it is worth considering succession planning, and upskilling your current workforce for key individuals to be able to step up in the future. This allows you to plan for the future, and aids employee retention as employees are able to see progression and investment into them.
January 2020 saw the Online Apprenticeship Service be opened to employers who are not required to pay the Apprenticeship Levy (with the levy being applicable to employers who have a payroll in excess of £3 million per year). This system allows companies to organise and recruit online for its own apprenticeship, choose its apprenticeship provider and manage its funding allocation.
With the economy under pressure, accessing the levy allows a company to develop its workforce using a budget that is already ringfenced.
Working with local schools, colleges and universities can be a great way to attract local talent into your company without any huge investment. It may be worth thinking about getting involved in careers fairs and such like run by educational institutes.
Providing benefits which are cost neutral
Pay and benefits is one of the most important aspects to many employees and is something that can help a business retain employees and attract new employees, particularly given the increased cost of living.
Whilst most benefits come at a cost to an origination, this is not always the case. One example of offering something extra at no additional cost is providing a salary sacrifice pension arrangement whereby employees give up a part of their salary, which would ordinarily be subject to income tax and national insurance contributions (NICs) and in return, the organisation pays that into employee’s pension. The employee saves the employee NIC and the organisation saves the employer NIC. The savings on employer NICs (13.8%) can be passed on to the employee as additional pension contributions at no extra cost to the organisation.
A salary sacrifice arrangement can also be put in place for electric cars. Again the main advantage to the employer is the NIC saving and employees will also be financially better off as they pay less tax and NIC on their salaries while getting to enjoy a brand-new vehicle that would have cost significantly more through personal or business contract hire.
Whilst not entirely cost neutral due to the loss of work on the additional day, one way of offering an additional incentive to staff is to provide additional holiday. Many employees really value their holidays and therefore providing an additional day of leave each year to employees, for example on their birthday, or at Christmas can be a very effective way of rewarding and increasing morale among staff, which in turn can impact goodwill and may help retain and provide a more engaged productive workforce. In turn, this may have the long-term benefit of retaining good, experienced members of staff, rather than having to spend time and money on recruitment.
2. Restrict recruitment and/or deferral of job offers
A freeze on recruitment is a straightforward way of reducing overheads without fear of legal consequences. It will give a company a chance to reassess what, if any, further resources are needed, or whether employees can be moved around (with consent) to fill any gaps.
Recruitment deferrals may be another option. This is where a company puts off the start date, or even rescinds the offer of employment already made. You should however proceed with caution if the job has been offered and accepted as the employee may be entitled to payment for their notice period.
3. Place a ban on overtime
A company may look to limit or remove overtime if there is no requirement for overtime. This will of course reduce the wage bill.
However, if you are looking to go down this route, you should check whether the employees affected have the contractual right to overtime. If they do, their overtime should not be removed without consent.
4. Reduce the use of agency staff and self-employed contractors
Looking to reduce the use of agency staff and self-employed consultants may be a relatively low-risk way to reduce employment costs without making ‘permanent’ staff redundant.
With that said, you should carefully consider the employment status of such individuals. Are your agency staff and self-employed contractors actually ‘employees’ for the purpose of employment law. If so, then they will have statutory rights including the right to a redundancy payment and unfair dismissal.
5. Reducing pay and pay freezes
Most contracts of employment do not offer a contractual pay rise each year, so a pay freeze is unlikely to be a breach of contract and avoids potential claims from employees, unless a pay rise each year has become custom and practice within your company.
You could also consider pay cuts. However, this is much riskier and must be dealt with carefully. A reduction in pay may represent a fundamental breach of contract and it is advisable to obtain the express consent from an employee to any proposed pay cuts. If you are in this situation, it is strongly advised that you take legal advice.
6. Reduction in hours/days worked
Look at seeking agreement with employees to reduce working time which could involve decreasing hours of work or reducing their number of working days and agree a corresponding reduction in pay. This could be an effective way of reducing costs without the need to make redundancies. You may also want to ensure you can require employees to increase their working time again once levels of work pick up.
7. Sabbaticals/Unpaid leave
A possible option for employees could be a sabbatical. You could consider consulting with employees about taking voluntary sabbaticals or invite staff to apply for sabbaticals. This could be for a defined period and may be unpaid or paid, potentially at a greatly reduced rate compared to normal pay. If you go down this route you will need to consider the terms of the sabbatical and it is advisable to enter into an agreement which sets out those terms.
8. Retraining and re-deploying staff
Could you retrain and re-deploy staff in alternative positions that may have become vacant or need filling? But bear in mind that unless an express term of the contract provides for this, it is likely to need employee consent.
Can our team help?
As a team, we have a broad range of experience when advising clients on alternatives to redundancy to save costs.
If you have any questions on the matters raised in this Guide, please do not hesitate to contact the Employment Team.