Ways of managing staff costs in uncertain times
Having to consider ways of cutting staff costs is never nice, but with the prospect of significant and extended economic uncertainty, we know that it’s a pressing issue for many employers. There are various steps which can be taken to reduce staff costs in the short and medium term – aimed to ensuring a sustainable and resilient organisation which is ready for when the economy improves again.
Practical options for employers include:
- Withdrawal of job offers – if offers are withdrawn before acceptance, there is no obligation on the employer to provide notice. If an offer has been accepted, the employer is required to give whatever notice is set out in the contract (often a week). Unless the employee was due to have started working during the notice period, no payment will be due. If they should have started work during this time, they should receive the appropriate salary.
- Non-confirmation of permanent employment in the probationary period – you may decide not to confirm the permanent employment of new starters either during or at the end of their probationary period. It’s good practice to give a reason for your decision, whether due to conduct, capability or economic factors.
- Termination of employment for short service staff – if employees have less than 2 years’ service, they are unable to bring a straightforward unfair dismissal claim. It can therefore be quicker and less risky to bring employment to an end for these individuals. BUT, these employees are still able to bring claims if the reason their employment has ended is related to discrimination, whistleblowing, raising health and safety concerns or raising trade union concerns. We advise that you’re clear with these employees about the reason why you’re considering ending their employment and that you document your decision-making process.
- Lay off or short-time working – for hourly paid staff, if you have a contractual right to do so, you can impose short-time working (i.e. giving staff less than half the work – and consequently less than half the salary – they would have normally received during any particular week) or you can impose lay-off (i.e. giving staff no work at all in a given week). On workless days, staff are entitled to a guarantee payment for up to 5 days in any 3 month period (currently the guarantee payment is £29/day, but this is due to increase from 6 April). Employees with more than 2 years’ service who have been laid off or put on short-time working for either 4 continuous weeks or 6 weeks in any 13 week period, are entitled to ask their employer to be made redundant and, in most circumstances, receive a statutory redundancy payment.
- Agreed reduction in salary/benefits – this is where we anticipate employers may be able to make meaningful savings whilst retaining staff. Changes to terms of employment can be introduced if an employee agrees – this can include an agreement to take a period of unpaid leave, a mix of unpaid leave and holiday pay, reduced working week in exchange for a reduced salary or a temporary/permanent withdrawal of benefits. Undoubtedly, employers may need to use their powers of persuasion to convince employees to agree to these changes. The normal process would involve consulting with employees to discuss what you’re suggesting and your business reasoning. If employees are willing to agree to the change, they should confirm this in writing. If employees aren’t willing to agree to the change then it may be possible to bring their current contract of employment to an end and offer immediate re-employment on the revised terms, although see our WARNING below.
- Redundancies – if you believe that you will have a longer-term reduction in the number of staff you need, you may need to consider a redundancy exercise. For all employees with more than 2 years’ service, this would involve consulting employees in at least 2 meetings before making any decisions. Where you are considering reducing the number of employees who all carry out the same or similar work, you’ll need to decide on the criteria which you’ll use to choose those who are redundant. Employees will normally be entitled to be paid their notice pay and a statutory redundancy payment. If your situation is such that the business may be insolvent and unable to make the redundancy payments, there is a process for payments being made by the government.
WARNING: if your situation means that you will need to consider ending the employment of 20 or more employees within 90 days (including by redundancy, termination of employment if changes to terms and conditions can’t be agreed, not confirming permanent employment on probation or withdrawing job offers), then you will be subject to the more onerous regime of collective consultation. Notification has to be given to the Secretary of State and there are significant financial penalties for employers who don’t properly provide information to and consult with the relevant elected representatives.