What steps can an employer take to reduce the wage bill?

What can an employer do if you simply cannot afford to pay wages? Hopefully, this question does not arise simply out of the blue. However, over the last 6 months, some businesses have been faced with significant cost increases which have led them to cease operating in some areas, close part of a business down, or in a worst-case scenario completely ceased trading. For many this is the last resort. 

In the most severe cases, the employer’s option is to reduce its headcount, dismissing employees by reason of redundancy. Redundancy is a potentially fair reason for dismissal. Employers will however be required to follow a step-by-step process to inform, consult, assess, and select employees who are to be made redundant. 

When a business becomes insolvent, staff will become redundant on the closure of that business. 

Before we get to this position of last resort there may be some other options: 

1. Consider removing agency staff, casual workers, or temps, and consolidate core headcount. 

2. Reduce overtime or other non-contractual benefits – an immediate step that can be introduced is to stop overtime. 

3. Agree flexible working hours to reduce overtime or shift payments. 

4. Giving notice to employees to take annual leave within a specific time. This approach can be effective if there is a temporary shortfall of orders or work to be done or the business operates a temporary shutdown. 

5. Reduction in hours – whilst an employer cannot unilaterally impose a pay cut, agreeing reduced hours, perhaps on a temporary basis, offers a way of retaining staff while still reducing costs. 

6. Reduction in other benefits, payments, allowances, or subsidies. As with the above, a negotiated reduction in pay or benefits may be agreeable to avoid compulsory redundancies.  

7. Seeking voluntary requests for redundancy – an employer will not be compelled to accept any request, however where requests can be accommodated this potentially provides an amicable solution in part and avoids one or more compulsory redundancies. 

8. Redundancy. Whilst redundancy is often associated with an economic imperative, this is only part of the equation. 

Redundancy can arise from a cessation or diminution of work now or in the near future 

Redundancy can arise where fewer employees are needed, or fewer employees are needed for work of a particular kind. 

Where a business needs to reorganise and/or redistribute work within a workforce to reflect changing priorities or demands it will be allowed to do so. A consultation period will be required to ensure fairness. Where groups of similar workers are impacted it will be necessary to establish selection “pools” and determine fair criteria for assessing employees to stay, be offered an alternative or to go. 

A question that is often asked is “can I make staff redundant in one area but not another?” The answer to this is yes, you could even find that you are recruiting in one area but still need to reduce headcount in another. 

Redundancy and Reorganisation are topics where good employment advice can be invaluable from the beginning. Efforts to consult with employees about avoiding redundancies will provide good evidence in support of fair dismissals.  

In some types of “reorganisations” a business may require the same number of people to do the work, BUT the work has changed in its nature and has been shuffled around within the existing workforce. Some jobs may have changed in skill level or even disappeared completely. In this case, there may have been no redundancies at all. Nonetheless, the employer will be required to consult with the workforce throughout the process and document relevant job changes. 

If you are reassessing your resources for 2023 then our consultants are here to assist you before you start and to help you along the journey.