Using flexible working solutions to reduce compulsory redundancies
Employers are increasingly looking for alternatives to compulsory job cuts, such as redeployment and flexible working. IRS investigates this trend and provides examples of employer practice.
On this page:
Examples of employer
practice
Redundancy pitfalls
Survivor syndrome
IRS research
CIPD research on alternatives to redundancy
Redeployment as a popular alternative
Strategic planning necessary
Flexible
working
Beware of the pitfalls
Additional resources on XpertHR.
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Key points
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There is growing evidence of employers changing their strategic approach to controlling people costs. Whereas previous downturns have seen employers turn first to compulsory redundancies, many are now looking at other means of keeping staff costs in check. Alongside introducing recruitment freezes, terminating temporary or agency workers and introducing wage freezes or cuts, employers are looking at ways of retaining maximum headcount, such as introducing short-time working and redeployment.
Examples of employer practice
KPMG found that staff reductions made in 2002 had long-term repercussions, and it did not wish to replicate this experience during the current recession. Not only was the redundancy programme unpleasant for all concerned, it also led to the loss of valuable people and left the organisation under-prepared when demand for services returned. Like many other employers, KPMG has chosen to explore other solutions during the past 12 months, in the hope that it can retain valued employees until their skills and experience are required again in the future. Key to this has been the introduction of short-term, flexible working that has so far saved the company in the region of £1.2 million.
Further examples of steps taken by employers to try to avoid redundancies during late 2008 and early 2009, according to media reports, include:
- British Airways (BA) chief executive Willie Walsh offered to work for nothing during July and asked employees to volunteer for unpaid work or unpaid leave (on the Guardian website). The British Airline Pilots' Association (BALPA) agreed a draft pay and productivity package (on the BALPA website) with BA in June 2009, which included wage cuts, reduced flying time allowances, increased annual duty hours and a chance for pilots to join a long-term incentive scheme.
- Employees at Ryanair have been told they are to take one week's unpaid leave (on the Times website).
- Staff at the construction equipment manufacturer JCB voted for a reduced 34-hour week and a pay cut, for a minimum of six months (on the Personnel Today website).
- Luxury yacht builder Fairline Boats reduced production and asked staff to work a two-day week while receiving 60% of wages (on the Personnel Today website).
- According to the Guardian, the Financial Times has asked staff to volunteer for a three- or four-day week (external website) during the summer of 2009, buy an additional seven days' leave, or extend annual leave at 30% of pay with a minimum booking period of two weeks.
- European Employment Review reports that French manufacturer STMicroelectronics introduced short-time working for staff on 60% of pay. Workers can reduce their loss of income by cashing in their entitlements to annual leave, seniority-related leave, training leave and time off granted as part of earlier working-time reduction schemes.
- Also in European Employment Review, staff at French tyre manufacturer Michelin agreed to a maximum of 15 "unworked" days over a 12-month period while receiving their usual basic pay, on the proviso that the days off will be debited against the workers in a collective working time account and the days "owed" to the company will be worked off in future years.
Redundancy pitfalls
Frequently, companies that look for alternatives to compulsory redundancies are reacting to previous experience. Sean Keeley, senior consultant at HR consultancy Kenexa (external website), told IRS: "It is fairly evident that a lot of companies who have made a large percentage of people redundant in the past have tended to regret it, compared to companies that have taken a more strategic approach." It is not uncommon, for instance, for companies to find that people they made redundant two or three years ago are the very people with the necessary experience and knowledge to fill subsequent critical vacancies or skills gaps.
Survivor syndrome
As well as the expense of making people redundant - and possibly re-hiring at a later date - a cull on staff can leave remaining employees disgruntled and less inclined to be loyal and productive. The IRS survey on managing the survivor syndrome during and after redundancies found that typically the remaining employees are affected by between three and four different symptoms of "survivor syndrome", including lower morale, reduced commitment and trust, poorer employee retention, increased sickness absence and slower decision-making.
In contrast, employers working with employees to find alternative solutions can help to create a more positive environment where people feel they are being treated with respect. Individuals will often welcome the opportunity to take steps that will help the organisation survive, especially if it means they remain employed.
IRS research
The IRS redundancies survey found that although three in four of the 181 organisations in the survey had to lay off employees in 2008, many were also taking steps to reduce job losses by cutting employment costs in other ways. On average, organisations used three or more measures to minimise compulsory redundancies, the most popular being:
- reducing the use of agency or contract staff (56% of organisations);
- voluntary redundancies (52.9%);
- redeployment or retraining (52.4%); and
- natural wastage/freezing posts (51.8%).
Additionally, one in five respondents introduced short-time working or reduced overtime to minimise redundancies during 2008, and 17.8% looked at pay cuts and pay freezes.
Short-time working or reduced overtime was more likely to be used by manufacturing and production companies (33%) compared with organisations in the private sector (14%). Just 4% of public sector organisations in the IRS survey used this as an alternative. Other flexible working options are more likely to be used in the public sector (23%) and private sector services (21%) compared with manufacturing and production (15%).
CIPD research on alternatives to redundancy
Research by the Chartered Institute of Personnel and Development (CIPD) (external website) published in January 2009 also highlights the range of alternatives that employers are pursuing to avoid compulsory redundancies.
Half of the 892 employers surveyed said that they have introduced recruitment freezes to offset the need to make redundancies, while 40% are terminating temporary or agency worker contracts and 15% have introduced short-time working. One in five (19%) of the employers in the CIPD research are increasing their use of flexible working, 17% are cutting bonuses and 7% are introducing wage cuts.
Gerwyn Davies, CIPD public policy adviser, comments: "There is little doubt that private sector companies will continue to shed staff in great numbers this year and into 2010. However, what often goes unnoticed beneath the media headlines is the extent to which employers are introducing alternatives to avoid or minimise the number of redundancies they make.
"There is a high cost to making people redundant, and letting skilled staff go can risk longer-term damage to the future prospects of the business. These findings highlight the lengths to which managers are going to minimise the impact of the recession on their organisations and employees."
Redeployment as a popular alternative
One alternative to redundancy that this CIPD research does not cover is redeployment of staff. According to CELRE, the salary survey specialist arm of XpertHR, staff redeployment levels have recently doubled (external website). The 2009 National Management Salary Survey (external website - subscription required), published by the Chartered Management Institute (external website) and CELRE, indicates that employers are using internal restructuring as an opportunity to transfer core skills across their business.
Seven per cent of senior function heads were transferred internally during the 12 months to April 2009, compared with 2.3% that were made redundant. With a view to the long term, analysis of the figures also suggests that employers want to retain junior staff: 4.9% were transferred compared to 1.3% facing redundancy.
Respondents to IRS's survey on redundancies also try to redeploy staff at risk of redundancy - 48% of manufacturing and production companies, 51% of other private sector companies and 65% of public sector organisations have all looked at redeploying employees where possible.
Strategic planning necessary
Keeley has been working with large utility companies - such as EON - to assess how best the skills of individuals can be redeployed within the organisation, in an attempt to stave off redundancies. He says that although redeployment is becoming more common, not enough employers are offering it. "More employees would like to be offered the alternative of redeployment and do not get that option," he says.
He suggests that this reluctance is often because managers are instructed to reduce their department's headcount but are not given the authority or support to seek alternative measures. "This kind of forward thinking has to come from the top and the organisation needs to ensure that they retain enough people in HR with the right skills to make it happen - often something that is overlooked," he adds.
As Keeley points out, experienced HR teams are best placed to look at the big picture, assessing where the skills gaps are, what changes need to be made to the recruitment strategy, and generally focusing on strategic workforce planning. "You can't look at redeployment if you are not looking at the individual, human resource, personal development side of things and viewing employees as a long-term investment," he says.
Keeley's redeployment work - largely with law firms, professional services firms and utility companies - includes capability audits and development centres. These help the employers look creatively at the skills, competencies and experience already present in their organisations, and match these with the skills and roles required to fulfil the companies' goals.
The aim is to keep skills in-house, to retain the loyalty of staff and to get a "better balance of people across the organisation", according to Keeley.
Flexible working
Temporary flexible working options such as reduced hours, sabbaticals and job-sharing are more likely to be well-received by employees as alternatives to redundancy compared with methods such as pay cuts, pay freezes and a drop in benefits.
In the car manufacturing industry, companies such as Toyota and Jaguar Land Rover (both on the Unite website) have successfully negotiated large-scale agreements where short-time working was introduced in conjunction with a temporary pay cut or a pay freeze.
Short-time working is common in France and Germany, where both Governments run benefit schemes to support temporary short-time working arrangements. Campaigners at the TUC, the Work Foundation, the British Chambers of Commerce, the EEF and the Federation of Small Businesses would like to see a similar scheme implemented in the UK (on the EEF website), indicating that a large number of employers see short-time working as an important and viable alternative.
As our case study on KPMG illustrates, options such as sabbaticals on reduced pay and a short-term reduction in working hours combined with reduced pay, can prove to be a popular and effective method of reducing costs and avoiding redundancies outside the manufacturing sector. It can also be implemented in a flexible manner, with broad employee agreement, even where unions are not present.
Flexible working options need not be offered en masse. Some companies, according to Keeley, are simply going through their HR files to see who has applied for flexible working in the past, and then offering the option to those who still want it.
Beware of the pitfalls
Employers that are considering any alternative to redundancy that constitutes a change in terms and conditions need to follow the correct legal procedure in varying contracts of employment. Communicating the changes to staff as clearly and openly as possible is one of the most important aspects of the process.
Advice and legal information on how to implement flexible working options as an alternative to redundancy are available from the EEF's brochure Get Time on Your Side (external website), Acas's Lay-offs and Short-time Working booklet (external website), XpertHR's guide to handling alternatives to redundancy, and Personnel Today's short-time working legal Q&A.
This feature was written by Charlotte Wolff, researcher/writer, Employment Review.
Additional resources on XpertHR
- KPMG avoids redundancies through flexible working Professional services firm KPMG achieved an 85% take-up rate for its voluntary flexible working scheme, saving the firm £1.2 million in employment costs.
- Survey: Managing the survivor syndrome during and after redundancies This IRS survey investigates what is being done by employers to counteract the survivor syndrome's damaging toll.
- Survey: Three in four employers plan job cuts in 2009 IRS looks at planned and recently implemented redundancy programmes, and gives insight into what alternatives employers use to minimise redundancies.
- Considering and handling alternatives to redundancy in an economic downturn - a guide XpertHR guidance provides technical and legal information for employers that are considering alternatives to redundancy.
- France: Short-time work scheme becomes key crisis-response measure European Employment Review outlines the French Government's benefit scheme, which supports employees on short-time working, and investigates how the scheme helps employers retain employees.
