By Eve Clennell
One of our principle customers has gone bankrupt and as a result we’ve lost about 20% or our regular work. I’m sure things will pick up soon but in the mean time I can’t afford to keep all of my staff. I don’t want to make them redundant if I can help it as they have some great skills and I’ll need them all again soon. What else can I do?
Firstly a warning, if you make employees redundant then you are not normally able to rehire or even advertise in to the redundant post within 3 months otherwise you risk a tribunal claim from former employees. If you believe that you will need your full complement of staff within the next 3 months then redundancy is not a viable option.
If redundancy is ruled out, there are three principle strategies of reducing staff costs at your disposal.
1. Reduction in working time or short time working
2. Reduction/ freeze in pay
3. Lay off
The foremost point to consider with any of the above three strategies is that your employees hold a contract of employment with you. Legally that contract must be written down, but if it isn’t then their current terms and conditions will almost certainly be considered to be ‘implied terms’. Implied terms essentially means that whatever happens at the moment with respect to pay, holidays, benefits, hours of work, sick pay etc will be considered, in law, to be contractual between you and your employee. Any changes to a contract whether a written or implied contract must be agreed between the two parties to the contract.
The strategies relating to reduction in working hours and reductions or a pay freeze are mostly self explanatory. If you have lost 20% of your work than reducing your working days from five to four would equal a 20% reduction in time worked. The expectation of such a plan would be that pay would decrease by 20% also.
A pay reduction or freeze in the situation you describe holds less validity. If you have lost 20% of your work then it follows that there is virtually a direct correlation to reduce hours by 20%. However there may be some circumstances that justify such an approach but you must have a well constructed argument for this strategy.
When you can't give an employee paid work for a temporary period then, as long as your employment contract allows or by mutual consent, you can lay them off for a short period of time. There are conditions to the amount of time for which you can lay employees off before they are able to claim a redundancy from the Company and you should seek professional advice. You should also seek professional advice concerning pay during a period of lay off is it is more complex than can be easily answered in this column.
After the appropriate strategy is chosen, the next major issue is communication. It is vital to keep your staff up to date on what is happening in the Company. It is proven that when people hear bad news they undergo a ‘grieving process’ firstly comes shock, then denial followed by anger then despair and finally acceptance. So by breaking bad news and then immediately attempting to get acceptance of the situation from employees is significantly less likely to succeed than if the situation is handled as part of an ongoing process.
Meet with your employees regularly over the period (known as consultation) and then, from the situation you describe, move to vote for a reduction in worked hours and pay. You must gain complete agreement from those affected and ensure you obtain agreement in writing. If you do not gain full approval then you cannot move forward with this strategy and you may have to move to a redundancy situation. To do so would be putting the Company at a high risk of breach of contract claims.
If you have any questions on short term working, pay reductions lay off or redundancy Eden HR Consulting can offers business orientated and effective solutions.