Options to reduce people related costs in difficult times

It's easy to think now that the only options available to business is to furlough employees or to make them redundant. The reality is though, for some businesses neither of these options meet the need of the organisation.

There are some alternatives that you can consider, and below gives you a brief explanation of some of these.

Reducing Hours

Your work may have decreased, but not to the point where there are jobs that need to be furloughed, or the nature of your business and the relationships means that taking a person completely out of the business for a time is difficult.

 

One option is to try and agree a reduction in work hours, with a corresponding reduction in pay. Unless there is something in your contract of employment that specifically allows you to do this, you are likely to need to seek agreement with your employees. It is important that you can articulate the business case for this, and be clear about what this means for them, their benefits, and their pay.

 

This has the advantage of allowing you to reduce cost and may be appealing to some employees who are struggling with impact of the coronavirus, for example having children at home, or who are finding working from home difficult.

 

Taking Holiday

This is less around cost saving but may mean that you are not left without resource later in the year when business picks up, but everyone has a lot of unused holiday to take, which may preserve revenue in the future.

 

Unless there is something in your contract or your holiday policy that prohibits it, employment provisions usually allow for companies to mandate when people take holiday. The rule is that you must give at least twice as much notice as you want someone to take. So, one month for two weeks.

 

This may mean you can ask people to take some time now while things are quiet and have everyone ready to start fresh when things pick up. Make sure though that you are not using this unreasonably (so leaving people with having to take unpaid leave for later mandatory time off like Christmas) and again, where possible try and get people to agree to this as this is likely to leave people feeling positive when it’s time to return and you want them fresh and engaged.

Unpaid Leave

It may be that you don’t feel that you can justify furloughing someone, but they would like to take some time out. This may be for several reasons, but a common one is related to childcare. If they are a parent of a child under 18, they have the right to request unpaid Statutory Parental Leave. There is normally a notice period they are required to give you, but this can be waived if needed. You can agree that someone takes unpaid leave on an exceptional basis, even where there is not a statutory right. In all cases you should be clear on the impact of this, how it will work, when the person is due to return to work and get this agreed and in writing.

Reducing/Deferring Pay

You may want to reduce your costs, partially to safeguard future cash flow, but at this stage you still have need for people to work. One option is to make a reduction on pay. Unless your contract permits you to do this, you would need to seek agreement to this, as this would be a change of terms and conditions.

 

If possible, you may make this more appealing by making this a shorter-term deferral rather than a straight reduction. Clearly though this will depend on the economic situation and whether a deferral will create more cash flow problems later that you may not be able to sustain.

 

There are a number of ways you can approach this with employees, it may be you have a set percentage in mind you need to reduce by, alternatively you could ask employees to volunteer what they believe would be a reasonable amount that they could sustain. This will very much depend on the situation you're in and what the cost saving you need to make is.

 

Make sure that you can explain this to your people in a way that feels authentic and rings true with what they are experiencing. It will be hard to get agreement to a decrease if they are seeing what may seem like unnecessary expenditure elsewhere, or you are talking about how many new clients you have. Even where you have the right to reduce salary, managing this in the wrong way could lead to longer terms issues with trust which can damage your employee relationships which brings its own set of problems longer term.

Please note that this information is for guidance only and should not be regarded as a substitute for taking full legal advice on specific facts and circumstances at the relevant time.