Choosing to implement a recruitment freeze is a low-risk cost-saving measure that has the benefit of not affecting current employees' rights. On the downside, an immediate tangible cost-reduction is unlikely. Danger also arises if employers go a step further by withdrawing job offers after they are accepted, which is likely to lead to breach of contract claims.
Cutting back on agency and temporary workers is another means of saving costs, as the right to redundancy payment is limited to employees. This cuts workforce overheads while also protecting the jobs of permanent staff and has the knock-on effect of reducing the risk of expensive employment tribunal proceedings if handled correctly. However, as a large car manufacturer found over the summer, the potential for negative publicity may mitigate against this option.
Using short-time working or lay-offs can be suitable where short-term challenges exist, but will require a pre-existing policy or employee consent. Even without a corresponding decrease in pay, costs can be saved if, for example, a plant could be shut down for a period of time, or for certain days in the week. Ford put such measures in place late last year, under which 600 workers stayed at home on basic pay and 200 carried out maintenance and training duties only. No manufacturing took place.
Employers should also be aware that, if an employee has been laid off or kept on short time either for four or more consecutive weeks, or for a total of six weeks in any 13, they gain the right to give written notice of their intention to claim a redundancy payment.
Extending the right to request flexible working to the whole workforce could eventually lead to an impact on costs, while also helping employees' work-life balance. Although likely to be appealing to many employees, it is not a ‘quick win' means of reducing overheads, particularly if it does not result in employees working fewer hours, for example through job-share, compressed hours or flexi-time. If a temporary solution is sought, sabbaticals may be offered, with employee consent, on reduced or no pay.
Another option to consider is cuts to salaries and bonuses. To avoid exposure to employment tribunal claims, it is important to consult over any proposed salary cuts and individual consent should be received in writing. Cuts can be temporary, or even reversible. Alternatively, a salary freeze could be implemented unilaterally provided contracts, policies and collective agreements do not contain provisions setting annual escalation levels. The ability to reduce bonus levels will very much depend on the company's contractual scheme and the discretionary or other nature of awards.
Significant cost advantages can be gained by reducing overtime for those employees whose contracts do not include it as a guarantee. Consultation with unions may be required if shift patterns are affected and possible effects on the ability to meet customer requirements should be considered.
Another area worth consideration is tax- efficient benefits-in-kind such as provision of work buses, mobile phones, bikes and bike safety equipment. A salary-sacrifice arrangement involves an employee giving up the right to part of their cash salary, usually in return for the employer providing a non-cash benefit. For example, the first £55 per week of childcare costs can be provided by an employer free from income tax and NICs. An annual saving of £373 in employer NICs per employee can be made, while a basic- rate taxpayer earning £20,000 can save £904 in income tax and NICs and a higher rate taxpayer earning £45,000 would save £1,196.
Despite Gordon Brown's conference announcement that tax relief on childcare vouchers would be removed by the end of the next session of Parliament, if another Labour government is returned, there is still time to consider this as an option. The plans outlined would mean that from April 2011 employees who want to join an employer-supported voucher scheme would no longer be able to benefit from current tax exemptions. However, existing voucher users would not be affected until April 2015, when the tax exemption would be withdrawn in its entirety. The popularity of childcare vouchers is illustrated by HMRC figures which show that 35,000 employers in the UK offer childcare vouchers to their employees, supporting 340,000 families' childcare.
These are just some examples of the measures short of redundancies that could be implemented. Others include offering employees the right to buy more holidays - which effectively means they will take unpaid leave - withdrawing discretionary non-cash benefits or, for those with an occupational pension scheme, offering voluntary early retirement.
Whichever package of measures is decided upon, care must be taken to undertake appropriate consultation, gain individual consent and consider the potential for discriminatory impact prior to implementation. Without going through each of the necessary steps, the cost benefits to be gained will be vastly outweighed by the expense of employment tribunal or court litigation.
Chris Phillips is a partner in the employment pensions and benefits team at Maclay Murray & Spens
