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Coronavirus – reducing staff costs in a sudden downturn

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Many smaller business are experiencing a sudden and dramatic downturn in business due to the impact of coronavirus.

With little in reserve, they are being forced to make anguishing decisions about their costs, of which staff normally form a significant part, in order to maintain the viability of their business through this difficult patch. 

What are some of the considerations when faced with this challenge?

number 1

Look carefully at the terms contained in your employment contracts.  Some (but not many) have clauses that cover ‘lay-offs’ and/or ‘short-time working’ which you might be able to make use of. Others may have no minimum or fixed hours/pay entitlement (i.e. causal or ‘zero’ hours), which might be a basis to legitimately reduce working hours/pay in accordance with the contract. This is subject always to an employer’s implied duty to act fairly and to not destroy trust and confidence between it and its employees;

number 2

Even if you have these contract clauses, anything that leads to a reduction in staff pay should be agreed with staff as a temporary measure if at all possible, to be clear on the consequences to your people and to mitigate against the risk of successful claims against the company.  Honest and open consultation with staff is therefore vital.  This is hopefully (or, in the case of ‘lay-offs’ and/or ‘short-time working’, necessarily) short-term, and you don’t want to damage long term employee relationships.

number 3

If staff are laid off, they may be entitled to statutory guarantee payments from the employer or, in some instances statutory redundancy pay

number 4

If agreement can’t be reached but cost-cutting short-term measures are nevertheless required to save the company, the employee’s options are essentially either to accept the change and ongoing employment in protest, and/or make legal claims against the company which would be possible under a variety of headings including constructive dismissal, breach of contract, and unlawful deduction from wages.

number 5

If you decide permanent cuts are required, then you may ultimately be contemplating redundancies.  Although your need to cut costs may be urgent, this will not be an excuse for ignoring the legal requirements to consult employees and select fairly, otherwise claims (e.g. for unfair dismissal) may result. You will also need to be mindful of the scale of any proposed head count reduction, and the possibility of triggering an obligation to collectively consult for a minimum period through appropriate employee representatives.

There are no easy options in this situation and difficult decisions to be made on all sides – if you have already fostered an open an positive culture in your business it will help you to survive intact.

Check to see if any of the government’s commitments to help businesses during this period might ease your cash flow and have a positive impact on your ability to maintain employment.

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Posted in Blog, Business Services, Healthcare, Hospitality & leisure, Manufacturing, Not-for-profit, Property & construction, Retail, Technology, Transport & logistics

Ed Hussey - FCIPD

Director, People Solutions

Ed Hussey is Menzies People Solutions Director providing specialist outsourced HR consultancy to help businesses retain, reward & develop their employees.