UK employers consulted with staff on nearly half a million redundancies during the pandemic - roughly 1.5% of the working population. The true number will have been much higher as small-scale redundancies are not captured by government statistics. The furlough scheme will have given many employers an opportunity to pause but as the scheme comes to an end, employers face some tough choices.

Over recent months we have seen a huge amount of creativity from our clients in finding ways to minimise redundancies. We share 12 possible strategies adopted by our clients and some thoughts of our own to help reduce cost without compulsory lay-offs.

1. Claim Government Help

This is perhaps an obvious point but with the government reportedly pumping £14bn into the economy each month this must be the first item on the list.

The main “furlough scheme” has now been closed to new entrants and will end on 31 October 2020 but support for employers remains:

• Job Support Scheme: From 1 November 2020 the government will cover the employment costs of staff who are furloughed for part of their normal working time. Employees must work at least 1/3 of their normal hours to qualify. The government will pay 1/3 of their wages (capped at £697pcm per employee) for each hour that is not worked. The employer must also pay at least 1/3. The employer can also pay the final 1/3 but most employers are asking staff to agree to reduce their pay by 1/3.

2. Cut Pay

A large proportion of our client base have implemented pay cuts in one form or another. In the case of employees placed on furlough, many were asked to agree to a 20% reduction in pay and so 20% has been typical of the reductions in pay that we have seen.

However, with employees working at home and with reduced commuting costs there is scope for almost all employees to accept some reduction without any change in their “take home” pay.

3. Reduce Benefits

Reducing the level of benefits or removing certain benefits entirely is likely to be far more palatable to the majority of employees than a pay cut. There is some empirical evidence to suggest that employees do not fully value the benefits they receive. We suspect that many will not immediately notice modest adjustments to the level of coverage in place for health insurance and the like.

Often (but not always) contracts contain flexibility to allow employers to reduce the level of coverage or withdraw it entirely and so it is far less likely to require employee consent or any form of quid pro quo.

4. Natural Wastage

As an alternative to redundancies many employers are:

• Allowing fixed term contracts to expire without renewal (noting that this amounts to a dismissal in law requiring consultation).
• Terminating contractors.
• Not replacing leavers.

For large companies, who are subject to the changes to the “IR35” rules on intermediaries, which are now due to take effect in April 2021 reducing their contractor population has some additional benefits. Not only does ending these contracts eliminate a compliance burden but the current situation makes it easier to integrate contractors with essential skills into the regular workforce at realistic pay rates. Read more about the changes to IR35 here.

5. Time Off

This is a variation on the theme of “Pay Cuts” but offers a quid pro quo in the form of reduced working time.

For example:

• Offering unpaid, part-paid or “benefit only” sabbaticals.
• Offering 4 (or less) working days a week.
• Offering job share arrangements.
• Requiring employees to use up holiday before busier times resume. This has the additional benefit of reducing termination costs if dismissals become necessary.

6. Voluntary Exit Package

Ok, we hooked you in on the basis that this article wasn’t about redundancies (i.e. reductions in force). But hear us out!

To our mind, there is a huge difference between compulsory and voluntary redundancies, from a cultural, practical and legal perspective.

7. North Shoring

We are likely to have a renewed interest in moving workplaces to less expensive real estate and/or to less expensive areas of the country. This is usually meant to refer to the great “northern” powerhouse cities of Manchester, Sheffield, Leeds and Liverpool but other options include the South West, Wales, Scotland and Northern Ireland.

8. Office Closure / Reduce Office Overhead

Currently it seems that half of our clients are considering reducing their footprint and the other half are taking the opportunity to negotiate with landlords over more space and lease extensions. There are a myriad of issues to consider here for those downsizing:

9. Create Churn

The legendary Jack Welch, CEO of General Electric, is famed for the practice of “letting go” the bottom performing 10% of its workforce each year. We make no comment on the business case for or the morality of this policy but found the write up in the Harvard Business Review on Jack hugely interesting for those who have time to read it. The reality though is that faced with the current economic pressure, we are seeing clients take a long hard look at the talent in their business to ensure that they have the best team on which to rebuild and/or to take advantage of the many opportunities that the current disruption creates.

10. Defer Pay

The most obvious quid pro quo for accepting a pay cut is some form of understanding the sum forgone will be repaid as some form of bonus when the good times return.

The easiest way to deal with this is a retention bonus or a cash based long-term incentive plan.

11. Pay Less Tax - a company Tesla anyone?

Wow that got your attention!

The notion of a company car was popularised during the 1960s, 70s and 80s a result of the relatively favourable tax treatment of non-cash benefits (perks). In recent years, the Government has penalised drivers of all but the most efficient company cars. As a result, company cars have rather gone out of fashion with most employees who would once have been eligible and are instead opting to take cash.

12. Reward Flexibility

One of the biggest quid pro quos for many of our clients has been a sense that “we are in this together” and that that employees want to work together to avoid compulsory redundancies. As a result, we have seen a tremendously high and unexpected level of buy in from staff.

This does however beg the question – what can employers do if not everyone is on board?

The lawyers answer would usually be to consult, to terminate on notice and offer re-employment on revised terms.

Another possible approach may be to use “willingness to share the pain” as one of the criteria for selection in any future redundancy program. Whilst there is no caselaw on this subject, the author’s view is that this ought to be fair provided it is clearly communicated at the relevant time, each individual case is considered on its merits and appropriate consultation has taken place.