If your business is in a difficult financial position and you need to cut costs quickly, you might be thinking about making people redundant. Salaries are a significant cost and you will save a lot of money by losing some employees. However, there are a lot of other costs associated with redundancy that businesses fail to consider. In many cases, redundancy isn’t the best option because it ultimately ends up costing the business more money.
Instead of making people redundant, you can look for other ways to make cost savings. For example, you could cut back on salaries or change schedules to slightly reduce the working hours of any employees that are not salaried. In extreme cases, you could even reduce salaries across the board to make savings. Although none of these situations are ideal, they’re often better than redundancy for the business as well as the employees. Here’s why you should consider alternatives to redundancy.
You Lose Valuable Team Members
Just because things are difficult, that doesn’t mean that the business won’t survive. It’s important to take steps to protect the business in the short term but you also need to think about what the company will look like when you come out of the other side of this crisis. Where will you be if you lose some of your most valuable team members who add value to the business? You’ll experience productivity issues in the short term too, and without the best team behind you, your ability to generate revenue is severely impaired. Don’t just think of employees in terms of what they cost, think about the money they bring in as well.
You Still Have To Pay Redundancy Pay
Even though you’re not paying a full salary, you still have to pay redundancy. If an employee has been with you for a long time, you will have to pay out a lot of money. While you might be saving some money, you’re not seeing any return on that investment. At least while you were paying a full salary you benefitted from an employee who could bring money into the business. Now, you’re just paying out money and getting nothing back, so are you really making a saving? You could avoid this by not offering redundancy pay but that is unfair to your employees and it will make hiring very difficult in the future.
Your Unemployment Costs Go Up
If you make an employee redundant and they file an employment claim against you, your contributions will go up the following year. These costs quickly add up if you are making multiple employees redundant. You can use unemployment management software to help you manage these costs (click here for more information) but, in some cases, you can’t avoid paying out more money. Challenging the claim is an option but this can be costly too, and it might not be worth it. The best way to avoid problems with unemployment costs is to avoid redundancies.
You May Be Subject To Lawsuits
A lawsuit is the last thing that any business wants. It’s expensive and if it drags on for a long time, it has a huge negative impact on the company. If you lose, it could seriously damage your business reputation too. Whenever you get rid of employees, there is always a chance that they will take legal action against you, so consider whether you are prepared to absorb that cost or not.
If you are considering making redundancies, you should always exhaust every other option first because you won’t be making the big savings that you think you will.
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