Strategy for reducing the wage bill post lockdown

The pandemic has had huge impacts upon many businesses, and also supply chains. During the period of enforced commercial hibernation, businesses will have taken the opportunity to ‘take stock’ of their post COVID-19 business needs; the level of resources (people and offices) they may need going forward; and their strategy for re-launching when it becomes safe to do so.

Furlough has enabled businesses to retain most if not all of their workforce during the pandemic. However, it will become apparent that some jobs will inevitably be lost as a result of the pandemic and a downsizing of a business’ resources may have been identified as an achievable cost cut without impacting, or greatly impacting, productivity. This will start to become apparent as the furlough scheme starts to wind down and employers are called upon to make a contribution.

Part-time and home working will be one easy way of reducing costs in the short and also long-term, as office space requirements are reduced. Staff with young children at home may welcome reduced or varied working hours. Other costs saving measures include pay and recruitment freezes; reducing business hours; changing the benefits package for new and existing employees; and across the board pay cuts.

The ease and timescales of introducing these measures will depend upon whether the changes you wish to make are contractual or non-contractual. Employees’ consent will be required if the change amounts to a variation of the employment contract. Some contracts may contain a right for the employer to vary the terms of the contract of employment, but employers need to beware of relying upon such clauses. Bear in mind that the proposals may be unpopular and / or may require a financial incentive to secure consent, which will impact upon the bottom-line saving of the proposed cost cut.

Another alternative is to unilaterally vary the terms of employment, which will be unpopular and may amount to a breach of contract, leading to disputes and expensive litigation. This could also have the unintended consequence of damaging relationships in the long term. It is not recommended but a business may need to impose the cost cut immediately and simply not have the time to consult with its employees.

The ‘nuclear’ option in bringing about work force costs savings would be to threaten to terminate and re-employ employees on the new terms of employment. However, this could result in a floodgate of unfair dismissal claims, which will undermine costs savings otherwise pursued by the changes, and have a negative impact upon the morale and potentially the productivity of the workforce. Many of the large national employers in the transport sectors have resorted to this option, which has irked the unions. Employees have been offered redundancy packages as an alternative, and many have chosen to take the offers.

It is fair to say that many employees will be alive to the fact that their jobs are at risk and there is huge uncertainty in the jobs market. Unemployment is expected to soar once employers are required to contribute towards the furlough scheme in August. Against this background, work force costs savings may be more readily acceptable by employees who will realise that if they agree to share a small amount of financial pain, it may help save jobs in the long run.

Since August, employers are allowed to bring back furloughed employees on a part-time basis and so this should assist businesses to gear up productivity in line with demand, whilst simultaneously being able to implement longer term cost savings.

The information contained in this article provides a general overview of the current position in relation to the subject matter. It does not constitute legal advice and should not be relied upon in relation to any specific legal problem. If you have a problem requiring assistance with an employment issue please contact our specialist employment team by telephone or email.