CIPD warns against redundancies

The CIPD says redundancies are expensive and should be a 'last resort'. Isn't that stating the obvious?

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Last Updated: 06 Nov 2012

The organisation (the Chartered Institute of Personnel and Development to those not in the know) says an average redundancy costs employers £16,375 before any savings are made, and that it's much better to hold on to employees and plan for recovery. Its chief economist John Philpott points out that redundancies come with a number of direct or hidden costs, especially when hasty firings ‘have to be quickly reversed by renewed hiring when economic conditions improve'. The CIPD's advice: companies should ‘hold their nerve'.

Such a statement hardly counts as a major revelation. It's hard to imagine any manager who believes a casual waving of the axe will solve all their problems and not cost a penny. Indeed, it'd be reassuring to think that any redundancies being considered are already a ‘last resort'. But this isn't the first time the CIPD could be accused of stating the obvious; it has also made the radical assertion that the recession is putting firms under ‘huge pressure'. Perhaps someone should inform the likes of Zavvi, Woolworths and Waterford Wedgwood.

Nonetheless, it's going to be a bleak year for employment news. Last week the CIPD's annual Barometer Report warned that this year looks set to be the worst for jobs in two decades. It predicts 600,000 job losses in 2009, as well as poor pay prospects for UK employees. More than half the respondents to its survey (56%) expect to receive either less than they did last year, no pay rise or, among a small proportion, a pay cut in the next 12 months.

The report pulled no punches in its assessment, stating that ‘in many workplaces in 2009, HR is therefore going to feel more like ER.' That's if there's anyone's left in HR: we heard of one recent case where the slowdown in recruitment had forced one HR director to fire themselves...

For anyone interested in the workings, the CIPD says the cost of redundancy can be calculated thus:

(n × r) + (x × h) + (x × t) + ny (h + t) + wz (p - n), where:
n = number of people made redundant
r = redundancy payments
x = number of people subsequently hired
h = hiring costs
y = percentage quitting post redundancy
t = induction/training cost
y = percentage quitting post redundancy
w= average monthly staff salary
z = percentage reduction in output per worker caused by lower morale
p = number of people employed prior to redundancies

So if you are considering redundancies, you may wish to brush up on your algebra first (and also read Andrew Wileman's MT feature on sharpening up your cost control).


In today's bulletin:

Autonomy's Lynch heads Britain's Top 100 Entrepreneurs
Treasury mulls loan insurance as Wedgwood cracks
CIPD warns against redundancies
Banks shunned 'anally retentive' Madoff
Quiz: MT's 2008 in 20 Questions

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