BLOG: Getting creative to avoid redundancies19 October 2020
In our latest blog Sarah Loates, Founding Director of Loates HR Consultancy encourages businesses to ‘get creative’ and consider ways to avoid redundancies. She explores the different measures employers could consider, some of which you may not be aware of…
Are you considering the need for redundancies?
As an employer you have implemented creative ways to identify, attract, and retain your key talent. You have invested time and energy in nurturing and developing your talent to align with your future business needs.
Yet through no fault of the business, the employer finds themselves in a position where it now needs to consider reducing costs. And typically payroll is the most significant cost for a business.
The employer with values at the heart of its business also finds itself in a difficult position. How can you lay-off huge chunks of your workforce in line with your core values and the direct conflict this places you in especially in terms of the psychological contract and the employee’s unwritten expectation the employer provides them with employment in exchange for their talents.
Employers also find themselves in the unenviable position of putting all or some of its workforce through a consultation process driven by legal procedure and lacking the fact that people and their livelihoods lie at the heart of the process.
Lastly, commercially it often does not make sense to cut costs in the short-term to only spend this three times over in the longer term on agency fees and other recruitment costs. Other indirect costs also arise from loss of ‘know-how’, sometimes referred to as corporate memory and the loss of client connections and relationships can be significant.
The bottom line is that it is a company’s cash flow that will typically dictate what is and is not viable.
So now more than ever employers should try to take a step back and consider some creative ways to avoid the need for redundancies and delay the need for implementing these. We will discuss some of the more creative ways that employers may not have considered below.
Common ways to avoid redundancies
Most employers will have considered the more obvious ways to avoid redundancies. These include:
Lay-off and short-time working:
Invoking the contractual right to temporarily lay-off employees or place on short-time working, (the existing furlough scheme is in essence a more generous version of a temporary lay-off). This is a temporary measure and can only be utilised for certain periods before an employee has the right to make a claim for redundancy. Some employers may choose this as an option at the end of the furlough arrangements in October.
Offer voluntary redundancy
Not a way of avoiding redundancies, but a way of reducing compulsory redundancy. If sufficient volunteers come forward this can avoid the process of selection and reduce risk. Many employers offer enhanced terms to help avoid implement compulsory redundancies. There is no obligation on the employer to consider offering voluntary redundancies, but it is sensible to do so in order to minimise the effect on morale of compulsory redundancies. To keep control of the process (and to ensure that the employer does not lose key staff), the employer should make it clear that it will consider all requests for voluntary redundancy but that it reserves the right not to accept all applications for voluntary redundancy, particularly if there are more applications than the proposed number of redundancies or it considers that it is in the long-term interests of the business to retain certain employees.
Lay-off casual workers/ agency staff/contractors
Where the business is engaging temporary self-employed individuals, agency workers that these arrangements are terminated. Alternatively, workers or employees on a zero-hours contract, their hours may be returned to zero for a temporary period. Before a decision is taken to terminate any engagement, consider carefully whether the individual in question is an employee or worker, as each category has different employment rights. This can be the case for zero-hours contracts, where sometimes employers are under the impression the individual is engaged as a worker, but in fact, they are an employee. This means after a two-year qualifying period the individual has the right not to be unfairly dismissed and the right to a statutory redundancy payment.
Stop voluntary overtime
A measure where there is a downturn in work and the additional hours worked by one employee can be shared amongst other staff.
Where the employer freezes all but business-critical recruitment.
Most employment contracts provide for salaries to be reviewed regularly, usually annually. It is legally permissible for an employer to freeze pay once it has carried out a review. (except for meeting National Minimum and Living Wage obligations). Clearly, a salary freeze is often viewed by employees as, in real terms, a pay cut. It is likely to reduce motivation and morale and should be well managed: clear communication and leadership from the top is a must. A pay freeze might not be enough on its own to avoid redundancies; so many businesses might implement a pay freeze along with other measures, such as a four-day week, sabbaticals or unpaid leave.
Early retirement and redundancy ‘shadow redundancies’
Employers with an occupational pension scheme may consider offering an early retirement pension in situations where the employee would otherwise simply be made redundant. It is important to ensure that retirement is indeed voluntary, or it could amount to dismissal giving rise to potential claims (in particular age discrimination).The form of the pension enhancement will depend on the rules of the employer’s pension scheme. The most common enhancement is to calculate the employee’s pension without any reduction for payment before normal pension age. Some schemes have special provisions that apply automatically if an employee retires early because of redundancy and, in others, the employer may be required to consent to the early payment of pension on more favourable terms. Seek advice from appropriate professionals before considering this as an approach.
Creative ways to avoid the need for redundancies
Reducing working hours or salary
One way of reducing costs without making compulsory redundancies would be to ask employees to agree to a reduction in working hours or a temporary reduction in salary. This could include moving to a four day week or job sharing for example. This will require a high degree of trust and you must have the express agreement of the employee. If the employer and management request this of their workforce they should consider leading by example with respect to the salary cuts. Likewise, ensure that any agreement to reduce salary does not take employees/workers below the National Minimum Wage or National Living Wage. Make sure in any documentation that you retain the right to require employees to work their full-time hours once levels of work pick up i.e. you do not intend this to be a permanent contract variation.
At the start of the COVID-19 crisis, we saw a number of businesses ask their senior management teams to either take a reduction in pay or to defer some or all of their pay to a later date. For example, you could ask employees to agree to defer say 50% of their salary for 3 months and pay them this over a subsequent six-month period, or in a lump sum at a later future point. This can help the company from a cash flow perspective. Again, you need the express agreement of the employee. You cannot do this if the effective deferring part of the salary reduces below the National Minimum Wage or National Living Wage. You would also need to consider putting in place a salary deferral agreement prior to the start of such an arrangement.
Job offer withdrawals
If a job offer has not been accepted, either verbally or in writing the employer may choose to withdraw this. Where the employer has accepted the position (and any preconditions attached to the offer have been met e.g. references) an employment contract is in place, even if the employee is yet to commence their role. Withdrawing job offers is a contentious option especially for the poor employee who has handed in their notice with their previous employer! Failure to give the requisite notice or, where contractually permissible, pay in lieu, will give rise to a breach of contract claim, which can be pursued in the employment tribunal, or civil courts. Normally, however, an employee’s loss will only begin to accrue after the employment start date. As a result, if an employer terminates the contract one week before work is due to start, and the employee has a four-week notice period, damages will normally be limited to three weeks’ earnings. If an employee’s notice period varies depending, for example, on whether or not the employee has completed a probationary period, damages are likely to be limited to the shortest notice period the employer would have had to give.
A more reasonable approach would be to adopt the middle ground and obtain express consent where the new employee agrees to defer their start date. If an employee has accepted an offer, (and met any preconditions). Some employers offer compensation alongside the offer to defer a start date. We discuss a specific example of this below.
Job offer deferrals e.g. graduates
Some businesses consider seeking agreement to defer their graduates to delay commencing their graduate programme or a training contract for a specified period e.g. 12 months in exchange for a lump sum of money. This could give the graduate the chance to go travelling or undertake some voluntary work, whilst at the same time reducing immediate overheads for the company.
Another headcount reduction option is to second an employee, either internally within a group, or externally to a client that needs additional resources or expertise (for example, because it has had to make redundancies). External secondments are often valuable commercial arrangements, which allow the seconder to reduce headcount, enhance employees’ expertise and keep clients happy at the same time. However, they are only a temporary solution, and, at the end of the secondment, the employer might be back to square one, having to make a decision about potential redundancies.
Sabbaticals / Career Breaks
A sabbatical or career break is a period of extended leave from work agreed between the employer and employee. These can be unpaid, partially paid or paid. The terms and conditions are usually agreed between the employer and employee, and there are no laws that cover taking a career break or sabbatical. It should be made clear at the outset what the expectations of returning to a role with the employer are. Career breaks can vary in length, some last a few months while others can last up to a year or a few years, employers should state the length of break that they are prepared to offer. In a redundancy situation, this could help aid retention of talent and avoid future recruitment costs. It is recommended that employers set out clearly from the on-set the arrangements for the employee’s return, e.g. if on return the role does not exist that you agree to offer an alternative role which is similar work, or an enhanced redundancy payment if they do not accept this role. An appropriate agreement should be put in place prior to the start of the arrangement.
Whether an employer can withdraw or cut down on bonus payments depends on whether the bonus arrangements are discretionary or contractual, whether the bonus payment is designed to reward past or future performance, and whether it depends on individual or collective performance. As with all other contractual terms, if the bonus arrangements are contractual and the preconditions for making the payment have been met, employees’ consent will be needed for any variation. If the arrangements are discretionary, judgement as to whether payment should be made and if so, at what level, must be exercised reasonably and non-capriciously. Seek professional advice on this point, a middle ground option may be to defer bonus payments, especially if this will support cash-flow, but we would recommend agreement from the employee should be obtained.
Salary sacrifices occur where an employee gives up part of his salary in return for a benefit, for example, pension contributions or childcare vouchers. The arrangements are often attractive to employees because they reduce their income tax liabilities. Many salary sacrifice arrangements are attractive to employers too because they are often easy and cheap to set up and administer and provide substantial savings in National Insurance Contributions. This is not the case universally, however; each arrangement needs to be considered separately. The adoption of a salary sacrifice will lead to a variation of contractual terms and must be documented. As this type of arrangement reduces an employee’s remuneration, it will also affect pay-based benefits such as enhanced redundancy and maternity pay. It is vital to explain to employees in advance the effect of the change on their earnings and future entitlements. Employers should also clarify how long the arrangements will last and entry and exit conditions. Ideally, employers should retain the right to cancel the arrangements at their discretion. The arrangements should be recorded in writing and, ideally, a revised contract of employment should be signed by both parties. Again professional advice should be obtained prior to implementing such a scheme.
Statutory Parental Leave
Employees could request to use statutory parental leave, this is unpaid leave. Each employee is entitled to 18 weeks’ leave for each child up to their 18th birthday. Parents can take in one year 4 weeks’ leave for each child, but the employer can also agree to more leave. Tread carefully in terms of how this is offered, we would suggest a general communication should be issued as opposed to approaching employees directly.
Each employee is individual and will have an individual perspective on aspects that may suit their personal circumstances. By getting creative jobs, key talent and skills could be retained within the business, whilst also making savings if cost reduction is an imperative for the survival of the business.
Anything is possible with mutual agreement, and key will be the buy-in of employees and that they have had input into any proposals to avoid redundancies. Engage your workforce early on and listen, as often they will also have creative ideas to explore which can achieve the mutual aim of preserving jobs and in turn the business.
If you want to learn more Sarah is running a free workshop “Getting started with small scale redundancies‘ on Thursday 26 November, 10 am to 12 pm. Book a free place at the link.
With thanks to Sarah for this blog. T: 01332 890 345.
View expressed in our blogs are from our contributors and may not be those of the Business Gateway.