Saving on Employee Costs

What Options do Employers have?

The COVID-19 pandemic has brought about huge changes to the business landscape in the UK and whilst some organisations have been more directly affected than others, consequential impacts across the economy are vast. Accordingly, a great number of employers are affected to a greater or lesser degree and, as a result, need to adjust their overhead base.

Employee costs are often the most significant expense in an organisation and ways to reduce that cost base are therefore a key focus at this time. The options available are both short term with relatively modest impact e.g. requiring employees to take holiday whilst on furlough leave to long term with material savings and consequences such as a restructuring/redundancy programme.

Below is a summary of options to consider but do remember that to protect your organisation from claims by employees arising from implementing these measures, you need to make sure that you follow a correct and lawful process.

The Coronavirus Job Retention Scheme (CJRS) followed by the Job Support Scheme allows organisations to recover the majority of the wage costs of their employees put on furlough as a consequence of the COVID-19 pandemic. The CJRS concludes on 31st October and the Job Support Scheme then commences for a further 6 months.

There are a number of regulations that cover eligibility to the schemes and how to reclaim the wage costs from HMRC and further details of both schemes can be found here:

Claim for wages through the Coronavirus Job Retention Scheme

Job Support Scheme

From a procedural perspective, it is important to maintain good records of each employee’s absence on furlough so that you can substantiate the claim if HMRC investigate. It is a requirement that the furlough period is agreed with the employee (it cannot be imposed) and that such agreement is evidenced in writing.

Both schemes are key in, at least, delaying mass redundancies being made in the UK during the pandemic with the gradually introduction of supported part time working.

Whilst the scope for unilaterally reducing pay costs is limited, employers should consider whether they can freeze any planned pay increases and eliminate any non-contractual benefits. Beyond this, pay reduction is typically only possible by agreement. Whilst normally this is not likely where the alternative may be the closure of the organisation and job losses, employees may be willing to agree to a cut in pay at least for a limited period.

One option here if cash flow is the issue, is to agree to pay cuts in the short term with any shortfall being repaid within an agreed time scale.

Always remember that your staff should be paid at least the National Minimum/Living Wage, and the changes to terms agreed in writing.

Similar to cutting pay, a reduction in hours can generally only be by agreement with the employee unless there is contractual provision to impose it. However, such a reduction in the current environment may be achievable. Indeed, it is likely to be preferable to an employee to work less hours for less pay than the same hours for less pay!

As for an agreed pay cut, do make sure that you follow an appropriate process with the outcome agreed and documented.

Shorter working hours may be positively welcomed by some members of staff so think about asking for volunteers as a first step particularly if you only need a relatively small reduction in hours across your organisation. A period of unpaid leave may be also appealing to some staff so again think about asking if anyone wishes to take an unpaid period of absence.

Contractors, provided of course they are genuinely contractors and not “disguised” employees, may be terminated without the risk of an unfair dismissal claim. However, you should of course comply with the terms of their contract when terminating as they will usually be subject to a specified notice period or, if not, reasonable notice will usually be implied.

Requiring staff to take holiday particularly those that are on furlough is a very sensible option to consider as most of their holiday costs will be covered by the CJRS with the employer only bearing the cost required to top the employee up to full pay whilst they are on holiday – at least until 31st July 2020. Requiring those who are not on furlough to take holiday does not save money in the short term, but will help ensure a full workforce is available once business picks up as the year goes on and lockdown eases.

Remember that as an employer you must give notice to the employee of at least twice the length of the proposed holiday period e.g. two weeks’ notice must be given of a holiday period of one week.

Outsourcing to allow greater focus on core business activities continues to increase as more and more organisations understand the benefits and cost savings if you get outsourcing right. We know from our own experience as providers of outsourced payroll and HR options that considerable savings can be made by using an organisation dedicated to the efficient provision of the outsourced activity. Whilst it can result in job losses, the starting point is that any employees focused on the activity that is outsourced automatically transfer to the new provider, so it may be even more cost effective than first anticipated. Look also to understand the hidden costs associated with employing staff to carry out non-core functions – e.g. office overheads, software costs, sickness and holiday absences and management time. Add these to the direct salary and associated costs and the savings make this a very worthwhile option to explore.

If for some reason, it is not possible to access the CJRS, employers can consider using a less well-known scheme which provides limited financial support to employees. This is the statutory lay off scheme which, if an employer has a contractual right to invoke lay off or gets the employee’s agreement, allows the employee to claim £30.00 per day that is not worked up to a maximum of 5 days in any 3 month period. Part time workers can only claim for a pro rata amount so this is altogether a much less meaningful support scheme. It also has pitfalls for employers in that if an employee has been laid off for four weeks in a row or 6 weeks in any 13 week period, the employee can claim redundancy. Further information can be found here – https://www.gov.uk/lay-offs-short-timeworking.

Implementing redundancies is usually the most severe step that an employer takes to reduce workforce costs. The impact on the individuals that are affected are likely to be serious and for that reason there is considerable statutory regulation in place to ensure that employers conduct redundancy terminations in a fair way. It is therefore essential that employers make sure that they prepare effectively before commencing the process.

We view these as keys steps when making redundancies:

The above is only a summary guide of options to consider when needing to make reductions in employment costs. It is by no means a full guide to all of the steps that should be taken when implementing such measures and does not factor in multiple scenarios employers may be facing. If you do need further assistance please feel free to contact us for a no obligation to chat as we would be happy to assist with any of these matters.