When the news broke in September that Ireland is officially in an economic recession, it likely didn’t come as much of a shock. The 6% rapid drop in Gross Domestic Product (GDP) surpassed all previous records – even those from 2008. Optimists among us argued that we were relatively lucky – that this was still a much lower percentage than the average throughout the Eurozone (12%). However, no matter how it’s spun, recession is not a nice state to be in. Many businesses have already made redundancies, and those that haven’t may now be considering this option as a cost-cutting method. Of course, redundancy can be very complex and requires a huge amount of planning. It shouldn’t be rushed into and it makes sense to consider whether there may be any feasible alternatives.
If you find yourself in the stressful situation of having to implement cost-saving measures in your business, then some of the below options may be worth considering. No matter which option you choose, the most important thing to remember is to plan accordingly. Put yourself in your employees’ shoes and think about what their main concerns will be. Discuss plans openly and keep employees in the loop as much as possible. The last thing you will want to do is risk alienating the very employees you are trying to keep!
Let’s face it, this one isn’t going to make you too popular in the workplace. No employee is going to be happy at the prospect of having their salary reduced, and it may affect morale across the business. It is important to note too that the pay cut must be their own choice. That is because while you have a right as an employer to suggest a reduction in salary, you have no power to enforce it without your employees’ written consent.
The salary reduction should be proposed to your employee(s) in writing, along with a suggested date of review. No change to their salary should be made until they have responded positively to the suggestion. Employees whose contracts include a clause stating that changes to the terms and conditions may be made at the employer’s discretion should also be consulted. Such clauses are generally only intended for minor changes, whereas a reduction in salary changes the core terms of the employment contract.
If you go ahead and make the changes to your employees’ salary without their approval, then they may resign and claim constructive dismissal. If, meanwhile, they refuse and you make them redundant, they may have reason to claim unfair dismissal if proper procedure was not followed. They may also be able to sue for breach of contract under common law or seek an injunction to prevent the implementation of the reduction. They could also pursue a payment of wages claim for the unpaid salary.
When the options are between a wage reduction and a redundancy, you may imagine your employee will be more than happy to take the pay cut if it means them keeping their job. They may have other ideas. They have bills to pay after all and may believe they can find a new job easily with a salary to match or even beat what they were on. Businesses with a strong internal culture may find themselves in a better situation than those where culture has not been a priority. However, it is important to think through the impact on morale even in organisations where there is a strong culture. Any measure proposed that affects employees’ take-home pay will reduce trust and can cause them to go outside the organisation to seek third party involvement like trade unions.
Voluntary reduction in hours
It may be feasible for your business to operate a four-day working week or similar. In this case, you are effectively reducing the cost of salary pay outs but will also have a reduction in output. Again, this is a change to the fundamental terms of employment and cannot be decided on without consultation with your employee(s). As such, it should also be proposed in writing with a suggested review date.
This option may be more appealing to your employees, as they will still be paid the agreed rate for the hours that they work. This would free them up to look for alternative work for the other hours to supplement their income. However, this is only feasible if your business can operate at less than full capacity. It is also different to short-time, which we look at in more detail below.
A recruitment freeze basically means all hiring is paused. This, combined with the natural loss of employees moving on for other reasons, can result in a reduction in headcount over time. However, rather than implementing a blanket ban of recruitment, you may wish to consider the roles which are highly skilled. Should you lose a key worker, can your business function adequately if that worker is not replaced? A softer alternative to an all-out hiring freeze would be to retain a fixed number of employees. That way, if an employee leaves then they can be replaced. Depending on the nature of your businesses financial needs this may be a good solution.
Incentivised career breaks
Typically with a career break, the employee will be off for an agreed period of time with no annual leave accruing and no remuneration during this period. They are given a return to work date, but they are not necessarily guaranteed the same role when they return. The purpose for the break is usually established and leave granted on that particular basis. However, some organisations offer incentivised breaks in order to avoid paying salary for an agreed amount of time, such as the HSE, who offered its employees up to €12,000 a year back in 2013 as a way of reducing operating costs. Of course, a monetary incentive may not be feasible for your business, in which case you may wish to explore how else you can incentivise employees to take some time off.
There is currently no legislation regarding career breaks in Irish law. This means that the terms of any career break, incentivised or other, must be agreed between both parties.
Short time and lay-off
Any reduction in pay or hours which amounts to more than 50% of an employee’s usual arrangements is called short time. Meanwhile, in a lay-off situation, an employee ceases working but is still an employee, regardless of whether they are being paid or not. Generally, employees are able to claim redundancy if they are laid off or placed on short-time for a specific duration. However, the rules regarding this have been paused until the 30th of November 2020.
It should be noted that neither short-time or lay-off situations are intended to be long term solutions. You can read more about short-time and lay off situations in our recent blog, here.
While these are some of the more commonly considered alternatives to redundancy, there are also several other options. Early retirement could be one such option, though this should be carefully thought through to ensure a fair procedure (look out for our upcoming blog on this subject!). Company restructuring is another option, whereby employees are retrained and deployed to other areas of the business.
As with all HR related matters, each option requires careful consideration and adherence to fair procedure. To discuss alternatives to redundancy with one of our HR Consultants, simply call us on 0567701060 and we’ll be glad to help.