Time to give redundancy the chop?

Redundancies aren't the most effective way to cut labour costs, says the CIPD. But is it that simple?

by
Last Updated: 06 Nov 2012

Put that axe down for a moment: a new survey from the Chartered Institute of Personnel and Development has found that alternatives to redundancy, such as recruitment freezes and unpaid leave, can save businesses at least £10k a year per employee more than imposing redundancies.

In what has to be good news for the nation's increasingly bloodied workplaces, the survey found that introducing a recruitment freeze and terminating contracts with temp agencies were found to save companies £27k per employee - compared with the £16.4k a company would typically save through a redundancy.

That CIPD argues that redundancy only really works if there's a long-term reason to get rid of people. In cyclical downturns like this one is (hopefully), by getting rid of people you're only shooting yourself in the foot, as you need staff to bring business in and to capitalise when things pick up.

The benefits to morale and reputation that come with keeping your team together are clear, so many companies may be reassured by being able to add a financial element too. And the good news is that companies seem to be cottoning on: a previous survey by the CIPD and KPMG this winter found that half of British businesses are introducing recruitment freezes and 44% terminating temp agency contracts.

The CIPD's bean counters also worked out potential savings from a range of other alternatives: dropping down to a four-day week saves £5.5k per employee; introducing six-month sabbaticals saves £13.5k; and pay freezes £750. All calculations were made for someone on a median private-sector salary.

Which is all well and true from a long-term, annual budget point of view. But if you're facing an increasingly tight cash-flow situation, there's nothing like being able to shave a few quid off the salary bill each month.

To back up its calculations, the CIPD cites the example of Serco - which it says has successfully redeployed over 100 people in roles within company and with rivals. Which all seems jolly nice. But we couldn't help noticing that in its choice of company, the organisation has selected one with a uniquely wide reach, and a potentially unrivalled record for thriving during recessions, the latter for reasons more complex than a kindly approach to HR. Whether the average company has the clout to do a Serco so successfully is another thing.  

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today