Both employers and employees are sensitive to the possibility of redundancies during a downturn and, however unpalatable the concept might be, businesses should not shy away from confronting the issue.
Those already affected should consider in advance alternative ways of reducing staff costs against the background of the business strategy as a whole. This is to ensure the reasons for any loss of turnover or profitability are addressed.
There are many strategies, falling short of redundancy, which although they may have an adverse impact, could be viable alternatives. Many of these allow the employer to save money and the employees to recharge their batteries, while sending out a more positive message to the workforce and the wider business community. For example:
- Stopping paid overtime – can be effective if it has become part of normal working practice
- Early retirement measures – offer early retirement to volunteers
- Terminating temporary contracts – can often be relatively quick to implement
- Retraining or redeployment – this should always be explored in depth. It is more cost effective than compensation or recruitment and induction costs
- Sabbaticals on reduced or no pay
- Re-negotiated terms and conditions as a whole – agree the terms with the workforce and issue new contracts
- Short-time working or reduced hours – to be implemented carefully depending on the current contractual terms
Ultimately, however, where redundancies are unavoidable, the process needs careful handling as it can have a profound impact on the morale of remaining workers and the confidence of business alliances and clientele. If necessary, a voluntary programme may send a better message and be less damaging to morale than compulsory cuts.
Having made a decision, the implementation is important and the appropriate HR procedures need to be followed. In addition, the issue of taxation on any termination or redundancy payment should always be considered. Gross payments will be more attractive to a departing employee and will often assist in the amicable settlement of the termination package. If employers get the tax treatment wrong, HMRC will deem them liable and the redundancy or termination exercises may end up being a lot more costly.
Statutory redundancy payments will always fall to be tax free, as the maximum payment allowable falls well below the £30,000 exemption and this element of a termination payment will always be exempt.
In any climate, redundancy will be a highly sensitive topic, but at the moment this is exacerbated by the lack of opportunity and vacancies. Even the best employers may be required to make tough decisions. It is how these decisions are handled, the communication that takes place with staff and the application of appropriate tax and National Insurance Contributions, which will ensure businesses will be well placed to look forward to the future.