Throughout the pandemic, many businesses have been forced to consider their labour costs. Given the difficulties that many sectors have experienced in maintaining ‘business as usual’, this has naturally meant lay-offs, short-time arrangements and in some cases redundancies.
As restrictions are imposed, lifted and imposed again, these cost-saving measures are likely still not far from the minds of business owners across Ireland. The SME sector in particular had only just got back on its feet after the last recession only to be blindsided by the pandemic. Many businesses have been seriously affected by the last 12+ months and have been mainly surviving thanks to government support.
However, we must remember that Brexit coincided with Covid-19, and it’s possible that we haven’t yet seen just how much of an effect that Britain’s departure from the EU has had on these businesses.
It’s likely there will be a tsunami of redundancies, business closures, businesses downsizing once the government reduces subsidies.
Whether redundancy is something you are considering, whether you have already implemented redundancies and are looking for other cost-saving measures, or whether you’re just looking for ideas on how to manage labour costs and productivity, we thought we’d ask Ireland’s leading financial management experts to share their thoughts on how businesses can survive and, hopefully, thrive as we begin to emerge from these difficult times.
As we were gathering their tips on how to reduce labour costs, some key focus areas began to emerge. These were:
- Managing cashflow
- Communicating your progress
- Keeping your people fully engaged
- Managing remote work effectively
- Educating employees about financial management
- Forward planning
Let’s look at each of these areas in greater detail.
Remember, if you want to talk about any HR issues that arise, you can contact Insight HR here.
It goes without saying that cashflow is the lifeblood of any business and so it is vital to maintain a strong focus on this area. As Ralph Smith, Managing Partner at Do My Books, says: “Almost everything else can be fixed but if a business runs out of cash it’s finished. We have clients who have been unable to trade for almost a year but by negotiating with key stakeholders and minding their cash they are ready to trade again when we reopen.”
By now, you have probably run the gamut of HR issues such as short-time, layoffs, hiring freezes, salary reductions, and possibly redundancies. Maybe it is time to consider new ideas to boost efficiencies and protect cash flow, such as performance-related bonuses to encourage greater efficiency, fixed-term hiring for the short term, or placing a greater focus on operational excellence.
Operational excellence involves streamlining all your systems and ensuring that all your people know them inside out. Operating systems do not need to be complicated. At the most basic level, McDonald’s uses specially-sized scoops for serving fries to ensure employees consistently achieve the key targets of customer satisfaction (the fries look good in the container) and waste reduction (the scoop picks up exactly the right number of fries).
There are also many systems on the market that can help businesses manage cash flow more effectively. “Online accounting systems, such as Quickbooks or Xero, can be linked directly to business bank accounts and can easily be configured to provide fully up-to-date information on the financial health of the business,” says Paul Carr, Managing Director at Smart Accounting Ireland. “The systems allow the business owner to collaborate directly online with their accountant or other advisors and will provide fully up-to-date reports at the press of a button. For business owners today, Cash is King but efficient systems are vital.”
Michael Queally, Owner of AMQ Accountants, agrees that efficient systems can be effective for improving cashflow management. “My advice for businesses where payroll costs are significant are as follows: – ensure the accounts department reports live payroll cost data management to enable them proactively manage this cost. In businesses such as hospitality or care facilities, ensure roster planning and roster management systems are in place and running effectively. In businesses where sales can be volatile, budget your staffing as a percentage of sales. Ensure good staff planning and recruitment systems are in place as this can minimise or eliminate the cost of agency employees and consultants.”
Of course, we cannot talk about cashflow management without discussing sales. Whereas a lot of businesses focus on getting more new customers, there is also a huge amount of value to be gleaned from a business’s existing customer base. This doesn’t just mean upselling or trying to move your customers to a more expensive pricing model. It means treating your customers as brand ambassadors for your service. The better you treat them, the more likely they will be to have a good experience and refer customers to you. “One of the best ways of making sure your pipeline is healthy is by looking after your existing customers first. You then set your business up to get recurring business and the right type of referrals.” – Carl Widger, Managing Director at Metis Ireland.
Communicating your progress
Extreme caution must be taken before cutting salaries, hours of work, laying people off or making them redundant, as the business might end up paying out more in awards than it saves by cutting the cost of labour. Remember that if you are affecting collective redundancies, there is a mandatory obligation to enter into an information and consultation process with employees’ representatives commencing not later than 30 days before any individual notice of dismissal is issued. To learn more about collective redundancies, see our recent blog on the subject here. You can also watch our recent webinar on how to implement a redundancy process here.
However, regardless of whether you need to implement redundancies, short-time, lay-offs, or some other form of cost-saving measures, communication and transparency is absolutely key. While there are some great arguments for keeping your cards close to your chest such as not to concern staff prematurely, any measures that affect your employees’ source of income should be discussed openly with them. With that said, all management should be on the same page as to when and how the news is communicated to employees. The last thing your business needs is for the news to leak out before the process has been considered, as this can easily lead to rumours and speculation that will affect employee morale and sow seeds of distrust in your organisation.
Even if your business is not considering making changes to anyone’s working hours, salaries or employment situation, clear communication is critical. This is even more important in a remote-work environment, opportunities for two-way flows of information and feedback are key for helping everyone feel a part of the organisation and that their opinions matter.
More importantly, ensure each person in your team understands how they personally impact the business. You could begin by describing the differences between profit and positive cash flow and explaining why cash flow is the priority.
Pat Sutton, Managing Partner at O’Kelly Sutton, has this advice. “When it comes to people we have found it’s largely about communications and everyone being on the one page. More than ever with people working remotely there can be a sense of isolation and not being part of the team. Set daily and weekly targets and actionable items, agree regular meetings agendas in advance along with talking times and meeting lengths.”
A good starting point for team communication is to clearly identify the most important business measures (Key Performance Indicators, or KPI’s) that will keep your business afloat during these challenging times. The critical measure of ‘Break-Even’ is a good start and you could then add other measures such as ‘Widgets Sold Per Month’ or ‘Cost Per Unit’ as appropriate. The KPI charts could be included at the footer of every team briefing email, in online chat areas such as in a Slack channel or in WhatsApp groups, and so on. The performance charts should be updated and discussed daily or weekly to emphasise their importance.
Keeping Your People Fully Engaged
This piece of advice might be difficult to implement when it comes to making redundancies. There will no doubt be an impact on the wider business, as employees might need to say goodbye to their colleagues and tasks are divided out among the remaining team members. This impact is understandable and perhaps may seem unavoidable. However, a happy workforce is also a productive and efficient one. If you are considering redundancies or similar measures, then you can’t afford to let employee engagement slide.
Again, communication will be vital. Regularly check in with your employees to gain an understanding of how they are processing the recent changes. Ask the remaining employees for their opinions on how the redundancy process was handled, and what they need from your business in order to feel motivated again. Consider whether training needs to be arranged for employees who are given new responsibilities and tasks.
On a more general level, we recently shared six focus areas that will help you re-engage your staff and have a better workplace in 2021:
- Workplace Flexibility
- Learning and Development
- Health and Wellbeing
Here’s a practical example of bringing these focus areas to life, courtesy of Mario De Dapper, Managing Director at Max Business Services;
“In order to improve productivity from my staff, I took a number of decisions prior to and after the first lockdown. Max Business Services is a service provider, and all staff are doing all kinds of administrative tasks. These are confidential, sometimes boring and demand a high level of concentration. Some of the measures I took (some of them at the start of the company, others after the 1st lockdown in 2020):
- No limitation on holidays. Ever. Everyone can decide when they want to take time off, not limited by the legal 20 days. If they want more, they can take them.
- Free drinks for all staff. We have tea, coffee, a water cooler, but also soft drinks. Whatever kind of tea or coffee staff wants, I organise. I don’t mind having 10 different types of tea or coffee (we have a Dolce Gusto coffee machine).
- We gave every staff member a free turkey and ham for Christmas. Christmas is for the family and times were tough for everyone. A little help that showed our gratitude for the work everyone had done during a difficult year.
- Free to leave the office if there’s an emergency. If they have, for example, a doctor’s or dentist appointment, they don’t have to take time off. They can just go. Same if something would happen with the children or family, they’re free to deal with it. No need to take time off.
- Freedom to arrive late or leave early if they think it’s necessary. For example, because of school drop off, or a child sick, etc.
- Freedom to daydream, as I call it. If a member of staff wants to take a break while, for example, staring out the window, then they’re free to do so.
- Freedom to take breaks. Staff is not bound to 15/30/15 breaks. Take a break when you feel you need it. Have a coffee/tea. Take a relaxing break or go for a walk in town. Work will still be there when they’re back.”
At Insight HR we especially love the last point. This ethos is in keeping with Henry Stewart’s four-day week, which you can read more about here.
Manage Remote Work Effectively
Businesses with staff working remotely as a result of the pandemic have no doubt been experiencing a steep learning curve. As Leo Barrett, Managing Director at XLXPay pointed out in a recent discussion with Insight HR, the global pandemic has required us all to “Unlearn first, in order to relearn.”
The lockdown has re-shaped the way we work and forced us to adapt our management styles in order to protect business performance. The learning is not yet over, however. What was first considered a temporary sticking plaster to help businesses stay productive and operational during restrictive measures has now evolved into a more hybrid approach as many employees have become used to enjoying the freedoms and increased productivity that remote working can offer.
Businesses concerned with cost-saving measures will no doubt be interested in whether remote working can work for them in the long run in some form, given the potential it has for saving money on office space, canteens and other tangible costs. Here’s some advice from a leader in the financial services industry on how to manage a remote workforce (name withheld).
“Today, many people are working remotely and some managers may be struggling to manage their remote teams and wondering if they are at their desks working or not. I have managed remote teams for many years and I always:
- Set realistic goals/targets
- Have measurable KPIs in place to enable monitoring
- Set up a team group chat in MS Teams/Skype etc and use this for regular team updates, have the team say “hello” each morning (just as they would in the office and good night in the evening). This makes them still feel part of the team and allows chit chat etc in this group.
- Be aware that working remotely does not suit everyone and some may need more motivation than others.
- Speak to each team member individually each day and encourage interaction with each other.
- As a manager be flexible, focus on the results and not how they are achieved
- Be available to your team, mentor, and advise. Let them know you are there if they need anything, be approachable and listen.”
If you have not already considered how remote working could work for your business in the long term, now is a great time to do so. In January, the Tanaiste published Ireland’s first National Remote Work Strategy to make remote working a permanent option for life after the pandemic. In May, there will be a public consultation on the introduction of a statutory right to request remote work. This could mean that in the near future, employers will be asked to provide reasons as to why a request to work remotely was refused. In a recent WRC decision, an employee’s claim for constructive dismissal due to not being allowed to work remotely was upheld, leading to an award of €3,712.50. It is therefore important that businesses seriously consider ways to make remote working both profitable and productive as we move towards post-Covid times.
Employee Financial Education
The best businesses practice what they preach and having an education plan in place for your employees to ensure they make sound choices with their money now and in the future can have a big boost for employee morale. In practical terms, this could mean increasing your employees’ financial awareness from a personal perspective.
“For years employers felt that supporting employees financially meant paying wages and providing a pension scheme. Then we moved to add in additional financial benefits like health insurance, bike to work, or death-in-service schemes,” says Nick Lawlor, Managing Director at Employee Financial Wellness. “But employers have now started to look to bridge the education gap between simply providing financial benefits to employees and teaching them how to make smart financial decisions that will enable them to achieve their financial life goals and dreams. Financial education can be the glue that knits all of an employers’ benefits together and shows employees how to best make sure that their income connects to the financial events in their lives.”
Ian Britton, Managing Director at Pax Financial Planning has this to say. “I encourage people to become educated with money – what does this mean? Sit down and review your current situation taking into consideration your income and expenses, personal budgeting, and cash flow modelling. Within the above look at all the things you are paying for such as pensions, investments, life cover, and any other insurance products and establish the requirement for same and to ensure you have peace of mind on the costs and benefits. This I am certain will provide clarity and transparency for your financial future.”
By taking time to educate and empower your team, you are strengthening your team’s resilience while also tapping into their creativity and motivation to address your business’s challenges. This matters because, as clichéd as it may sound, you really are in this together.
Businesses across Ireland have naturally focussed on surviving these difficult times but, eventually, society and the economy will recover so it’s worth looking ahead and planning for what comes next. From a HR perspective, future challenges may include skills shortages in key areas, a continuation of remote work, labour mobility issues, and more.
From a financial management perspective, future challenges include credit management, reduction in government support, and other such issues.
“Employers need to start planning towards life after COVID which will mean government subsidies and assistance tapering off,” says Brendan Kean, Office Managing Partner at Roberts Nathan. “Where the business has been temporarily closed or the activity has contracted during the pandemic, they will need to consider how they re-engage with their staff and bring them back into the business in a manner that allows the business to rescale at the same time managing cashflows. Employers also need to consider how they will deal with any warehoused tax liabilities. Reopening Ireland may prove the most difficult part of the COVID 19 emergency from a finance perspective.”
Gary Grimes, Managing Director at GDG Business Finance also has these words of warning: “Business owners should remember to ‘keep the accounts clean’. A major red flag for lenders when looking at a credit application is unpaid items in a bank. 3 or more in 6 months then expect a decline. The automatic process of a direct debit actually starts 3 working days before the money is due to leave the account, and once is starts it can’t be stopped. Always be looking 5 working days in advance to give yourself plenty of time for any cash flow adjustments required and avoid the dreaded ‘unpaid fee’ in the bank.”
So, just how will your business survive post-Covid? Have you thought about how your business will manage employees remotely? Could there be an opportunity for cost-saving by maintaining smaller office locations? If your business has been surviving thanks to government assistance, have you considered what re-opening will look like and whether your business will be able to operate as it was before Covid? Have your customers needs and wants changed during the pandemic, and will this affect the demand for your product or service?
One thing seems to be certain, and that is that no business will be able to simply pick up where it left off as if Covid never happened. Planning for the long-term effects of the pandemic should therefore be top of your priority list.
How To Reduce Labour Costs – Ask For Help
Remember, there are people and resources available to help businesses manage cash flow, reduce expenses, and make changes that are necessary to help you remain financially viable. There are plenty of hidden dangers when it comes to labour cost-cutting, so it is important to get advice so you don’t end up paying out on awards and legal fees.
Find out more about your options and seek advice from a trusted third party. Your business’s accountant will be able to help you discover how much the business needs to save, while a HR provider such as Insight HR will help you implement that advice.
Also, make use of peer networks. Now is the time to reach out to your networks for support and advice. Being able to have some control over your situation is good for your mental health.
Find or form peer groups to brainstorm and learn from one another. Listen to other business owners’ stories about their challenges, their learnings, what they are doing, and how they overcame them.
Finally, if you want to talk about any HR issues that arise, you can contact Insight HR here.