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Cutting costs — without cutting staff

In the heat of a financial crisis, such as the one we are presently going through, companies must focus on their financial viability. When businesses run into financial difficulties and need to reduce costs, the knee-jerk reaction is often to consider the scope for job cuts, writes Donal Laverty, Consultancy Partner at Baker Tilly Mooney Moore.

But redundancies are not a cheap option and if mistakes are made in the way redundancies are handled, further costs may be incurred on account of tribunal claims. Other drawbacks include the loss of valuable skills and experience and the negative impact on the morale of the staff that are retained.

When you let a long-term employee go, you may be saving a weekly wage, but you also lose years of priceless knowledge that person has accumulated about your business and your industry (knowledge that may be hard to replace or that may very well end up benefitting a competitor).

Then there is of course the cost of rehiring. As things pick up again, as they inevitably will, you’ll face all the expense involved with recruiting new staff and training them to the level of the employees you let go.

So rather than opting for short-term gain and longer-term pain, it might pay you to look at other cost-cutting measures first, because there are a number of ways to reduce your costs, without reducing your workforce. This brief summarises some of the ways to reduce staff costs*

Coronavirus Job Retention Scheme

In response to the ongoing health crisis, the government’s Job Retention Scheme has allowed employers to temporarily lay off employees (furlough).The JRS covers the cost of wages backdated to 1 March 2020 (if applicable) and has been open up to a maximum of £2,500 per month. A Job Retention Bonus was recently announced by the government to incentivise employers to keep on furloughed employees after the furlough scheme finishes at the end of October 2020. A one-off bonus of £1,000 for each furloughed employee who is still employed on 31 January 2021 is offered.

Withdraw Job Offers and/or Defer New Joiners

If you have recently made an offer but it has not been accepted then you can withdraw it without any cost implications. However, you need to be careful if unilaterally withdrawing a job offer that has been accepted as this will be a breach of contract.

Alternatively, deferring a new recruit’s start date will help cashflow but require their consent if the offer has already been accepted.

Short-Time Working or Introducing Reduced Hours

Short-Time working is a similar concept to laying-off, but is where an employer unilaterally reduces an employee’s hours and pay commensurately, on a temporary basis. As with lay- offs, there must be a contractual right for the employer to make the change, and the employee retains the right to claim a redundancy payment once certain timescales have been reached.

Redeployment or Secondments

Consider redeploying employees who are less busy or perform fewer essential tasks to areas of the business where there is a maintained or increased workload – supporting them with retraining where necessary and practicable.

Sabbaticals and Unpaid Leave

Some employees may welcome the opportunity for unpaid time off, particularly those with young children or elderly parents and who now have full time caring responsibilities or trying to achieve home schooling.

Salary Sacrifice

You could introduce a shorter working week (for example a four-day week with an associated 20% pay cut) as a temporary measure.

Other options worth considering include;

  • Reducing or removing discretionary or non-contractual benefits.
  • Allowing fixed term contracts to expire without renewal (noting that this amounts to a dismissal in law).
  • Reducing overtime and use of contractors or associates.
  • Requiring employees to use up holiday before busier times resume. This has the additional benefit of reducing termination costs if dismissals become necessary.
  • Postpone pay increases and backdate later
  • Promote job sharing arrangements – Job sharing arrangements allow multiple people to fill one job role

Finally – Ask the employees : Ask the employees if they can come up with any ingenious or innovative ways of reducing costs whilst avoiding redundancies. They may have some good ideas!

Baker Tilly Mooney Moore provides a wide range of organisation restructuring and cost improvement services – speak to the team if you need assistance in making your business work again.

*Always seek professional advice before embarking on any cost reduction strategy