Employees are drivers of a business' success. They are also one of the greatest overheads and, in a tougher economic climate, we look at the key measures that entrepreneurs and business owners can take to streamline costs and the key legal considerations to bear in mind.
1. Reducing pay and benefits
If you need to cut overheads, reducing staff costs is an obvious way to do so. However, it is important to ensure that any changes are made correctly to avoid costly and time-consuming litigation. Changing your staff's basic salary will always be a contractual change, meaning it requires agreement. However, overtime may be discretionary rather than guaranteed and so you may be able to change these arrangements or not offer overtime without getting the agreement of your staff.
Contractual benefits such as health insurance, which may not be widely used by staff, are a potential area to cut back (although the costs of these schemes are often comparatively low). If you opt to do so, it is important to check the employment contract to confirm it allows you to withdraw or vary the terms of the scheme before removing the benefit. Also you will need to consider the impact on those employees who may be utilising the benefit.
2. Lay-off and short-time working clauses
Lay-off and short-time working clauses in contracts were dusted off or increasingly introduced in the pandemic and are lawful ways of sending people home without pay when there is no work for them or reducing their working hours to pay them less than half their usual pay.
However, you need a contractual clause in your employment contracts allowing you to do so and, where you utilise the right, you will need to make guarantee payments. You should also factor in that the laid off or short time employees can resign and claim a redundancy payment if they are laid off or on short-time working for 4 consecutive weeks or 6 weeks in a 13 week period which clearly reduces the cost saving to the business.
3. Redundancy
Cutting overall headcount is another means of reducing your overheads. However, there are a few key areas employers should bear in mind when making redundancies to avoid claims, which could be more costly.
- Selection: employers need to identify appropriate 'pools' and apply fair selection criteria in a fair and consistent way.
- Consultation: it is important that the collective consultation obligations are followed, where they apply, as well as individual consultation; that redundancies are not presented as a foregone conclusion and that genuine consultation with staff (and their representatives where required) takes place. It is also important that you file an HR1 form with the UK government, where applicable, as failure to do so can result in criminal offences, including fines.
- Alternatives to redundancy: you should consider whether each of the dismissals can be avoided, in particular considering any vacancies in the group of companies;
- Appeal process: this should be genuine and not just pay lip service to a fair process.
For those with over 2 years' service who have unfair dismissal rights, you need to have both a fair reason and follow a fair procedure so you need to be clear on the business rationale and ensure the process is fair. You should also ensure that you follow any redundancy policy or collective agreements that are in place.
You will need to cost the redundancies, including the employment costs through the consultation process, notice pay, redundancy payments and any other termination payments and potential claims for those whose employment is terminated. There will also be costs to productivity during the consultation process and keep in mind maintaining morale for retained staff. You should try to ensure that the process is as humane and dignified as possible.
4. Retaining key staff
A key priority for all businesses is retaining the best staff, particularly during periods of change which can unsettle everyone.
As well as maintaining morale, you will want to ensure that retained staff are motivated. Even where pay rises are not possible, non-cash incentives such as share schemes, can be a useful tool for rewarding long-term loyalty and allowing staff to share in the business' success. Any share documentation should be drafted carefully and separately to the employment contract.
You can also consider other seemingly low cost benefits to retain staff like remote working, unlimited paid time off and flexible working. You will need to take advice on the legal implications of these and putting in place policies setting out how they will operate in practice.
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