7 ways to cut staff costs during the coronavirus crisis

‘The vast majority are looking to cut staff costs in order to survive the coronavirus pandemic’

Cashflow is a major concern for small businesses during the coronavirus crisis. The vast majority are looking to cut staff costs in order to survive the coronavirus pandemic, and indeed prosper once normality is restored.

But what if you have a talented workforce who you don’t want to lose? We all know how hard it has been to recruit over the last couple of years, especially in tech and for highly skilled positions.

How can businesses cut staff costs during the coronavirus crisis?

#1 – Furlough leave

Furlough leave is a new concept in the UK – it’s indefinite leave during which the government covers wage costs. Businesses can recover 80 per cent of wage costs, up to a maximum of £2,500 per month per employee.

It will cover employees who might otherwise have been made redundant, laid off or put on unpaid leave. There is no limit on the number of employees who can be furloughed. The scheme is initially in place until June 2020, although it is expected this will be extended.

While some employers will top up the grant, so employees receive full pay, there is no obligation to do so. A consistent approach should be taken to limit the risk of disputes, especially arising from alleged discrimination.

To put staff on furlough leave, each employee must agree to being designated as a ‘furloughed worker’. In practical terms, this is unlikely to be controversial, as it will no doubt be more attractive to employees than redundancy, lay off, unpaid leave or a reduction in pay. Ideally, there should be a written agreement – email is likely sufficient.

In order to obtain the grant, employers will then need to register on HMRC’s yet-to-be-launched online portal.

Employees cannot elect to be a furloughed worker without their employer’s agreement.

It appears possible for employers to furlough staff during a redundancy consultation period. However, this will need to be clarified once the regulations are published.

Businesses should be aware of the potential for resentment between employees where some remain at work (on either full or reduced pay), some are on furlough leave receiving at least 80 per cent of pay for doing nothing, and some are off sick (ill or self-isolating) and receiving only statutory sick pay (around £95 per week).

#2 – Temporary reduction in pay and benefits

While, under normal circumstances, employees and their representatives would be unlikely to agree to a pay cut, where the alternative may be the closure of the business and job losses, there may be more of an appetite to reach an agreement for the duration of the crisis.

Some employers are deferring pay (i.e. cutting pay for a limited period and committing to make staff whole once the situation has improved). When taking this approach, it would be prudent to build in a review mechanism to avoid a subsequent cash flow crisis if business does not improve as swiftly as anticipated.

Workers should be paid at least the applicable National Minimum/Living Wage, and revised terms agreed in writing.

There may be obligations to consult with unions/employee representatives if such a change is proposed for 20 plus employees.

#3 – Unpaid leave

Seeking volunteers to take periods of unpaid leave is another way of stopping or reducing work temporarily, and again requires employees’ consent. Where an employer has a restrictive unpaid leave policy (e.g. with conditions as to length of service or the number of unpaid leaves available), it may decide to waive these to encourage take-up of leave.

#4 – Ending the contracts of non-employed staff

Staff who are not employees (i.e. contractors and “workers”) may be dismissed without the risk of an unfair dismissal or redundancy payment claim. However, care should be taken when identifying who is a “worker” rather than an employee – the distinctions are slight and have been the subject of much litigation over recent years.

Employees with less than two years’ service may also be dismissed without the spectre of unfair dismissal liability or redundancy pay. However, as noted below (“Redundancies”), it may be prudent to consult with such employees in any event, as any worker or employee has the right to bring a discrimination or whistleblowing claim, no matter how long they have been engaged.

#5 – Requiring workers to take holiday

Although requiring staff to take holiday would not save money in the short term, it would ensure a full workforce once business picks up and enable everyone to focus on rebuilding the business.

#6 – Short-term lay-offs

Where it is not possible to access the Coronavirus Job Retention Scheme, short-term lay-offs, if structured carefully, can effectively give businesses the ability to make an “interim redundancy”, paying a reduced wage to workers for a period of time during which they are doing no or reduced work. Once the business picks up, arrangements can return to normal. If the downturn is prolonged, the “interim redundancy” can be made permanent.

There are statutory schemes available to supplement workers’ pay during lay-off, but these are significantly less generous than the job retention scheme. Lay-offs, therefore, are likely to be a fall-back option.

As is the case with pay cuts, it is likely to be necessary to obtain individuals’ agreement to be laid off temporarily (unless there is already a contractual right to do so) and to consult collectively where 20 or more employees are affected.

#7 – Redundancies

If the longer-term impact of the pandemic is likely to mean that a reduced headcount will be required even when the business picks up, redundancies may be unavoidable.

Businesses can consider seeking volunteers for redundancy, although this is likely to require an exit package in order to incentivise staff to volunteer.

Employees who have been in the business for two years or more will have unfair dismissal protection, and the right to a statutory redundancy payment. In order to reduce the risk of litigation, it is good practice to carry out at least some consultation with all staff at risk of redundancy (and to allow staff to appeal), including those who have only been with the business for a short period of time. Employers should also be able to demonstrate how individuals were objectively selected for redundancy – this is often best done using a scoring matrix. 

Where 20 or more employees are put at risk of redundancy, within a 90-day period, the employer should consult with staff on a collective basis. Failure to do so, and to notify the Secretary of State of the proposed redundancies, can result in criminal liabilities for directors and punitive fines of 90 days pay per affected employee.

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