The impact of recent global events and the current economic climate means many businesses are facing difficult circumstances and research shows that unfortunately nearly one in five businesses are considering making redundancies in the year ahead.
Staff payroll is typically the biggest single cost for employers so, when looking to cut costs, redundancies may seem like the quickest and easiest option to save a business. However, before moving straight to redundancies, it is important that employers consider the risks of making redundancies and whether there are suitable alternatives.
Risks to consider before making redundancies
There are a number of risks to making redundancies which businesses should consider before commencing a redundancy procedure:
- The cost of redundancy payments – employees are entitled to their notice pay and holiday pay and those with over 2 years’ service are entitled to a minimum statutory redundancy payment.
- Loss of trained workforce – employers will be losing expertise and skills which they may need in the future when business picks up.
- Impact on morale – redundancies can have a profound impact on the remaining workforce leading to decreased levels of motivation, morale and productivity.
- Potential employment tribunal claims – if the correct redundancy process is not followed, the business may face costly employment tribunal claims.
Alternatives to redundancy
It is advisable for businesses to consider alternatives to compulsory redundancies, including the following:
- Early retirement – employees approaching retirement may be willing to consider taking early retirement in order to avoid colleagues being made redundant.
- Voluntary redundancy – offering an enhanced voluntary redundancy package across the workforce might reduce the need to make compulsory redundancies.
- Limit/stop overtime – this can be an effective way to reduce costs in the short-term.
- Recruitment Freeze – avoiding replacing employees who leave the business means work can be redistributed amongst existing staff.
- Lay-offs/short time working – temporarily stopping or reducing employees’ hours and pay can only be done through consultation and express agreement with employees unless there is a contractual right to do so.
When redundancy is the only option
If making redundancies is unavoidable, employers must ensure there is a genuine redundancy situation and follow a fair and reasonable consultation and selection process to avoid employees bringing costly employment tribunal claims against the business.
If your business is considering making redundancies or making changes to staff terms and conditions of employment, please contact our Employment Team on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.