As the credit crunch starts to bite deeper, employers are looking to minimise the impact on their bottom line. How they manage to reduce their costs, whilst limiting damage to their business, will be an important factor in determining how they come out the other side. Employers are looking to reduce overall wage costs, but the blunt instrument of redundancies can be both expensive in the short-term and counterproductive, particularly if they are handled badly. Apart from the management time and focus, which is required to successfully implement a redundancy process, the organisation may suffer poor morale and productivity during and after the process. This can have damaging effects on the profitability of the business and also result in costly employment disputes.

Before embarking on a redundancy process, employers are well advised to consider what other payroll savings can be made. These can include reductions in overtime or other premium payments, restrictions on recruitment or encouraging staff requests for flexible working. Many employees may be willing or even eager to reduce the number of days a week that they work or reduce their working day to facilitate childcare arrangements. An Equal Opportunities Commission survey reported that 52% of men and 58% of women said they wanted to work more flexibly. Recent research by Accor Services reports that flexible working options are top of the list of the most wanted staff benefits. Many employers have been reluctant to diverge from the traditional 9 to 5 working day, but may find that significant savings can be made if they allow employees to work, for example, within school hours. They may also reap the benefits of improved levels of retention and employee satisfaction as a welcome side effect.

Home working is another option, which is often popular with employees. The benefits reported by employers include reduced overhead costs and increased productivity, along with improved retention of skilled employees and better employee motivation. There can be drawbacks to home working such as duplication of equipment, loss of day-to-day control of employees and damage to team working and culture. But the concerns of some employers that homeworkers do not pull their weight are generally misplaced, with the opposite often being true.

Ultimately, it may not be possible to make sufficient savings without resorting to redundancies. As part of the redundancy process, employers should consider offering reduced hours or flexible working packages as alternatives to redundancy. During any fair redundancy procedure, the employer must consider whether any suitable alternative employment may be offered to the affected employees. Flexible working arrangements are potentially suitable alternatives, but only if they are suitable in relation to the particular employees to whom they are offered. The employee is not obliged to accept an offer of suitable alternative employment, but, if they refuse, they will forfeit their entitlement to a statutory redundancy payment. The reasonableness of any refusal will be judged on the individual's personal circumstances. An offer that involves a decrease in pay is unlikely to be suitable, but an offer that involves a change in hours and/or location might be.

Throughout the redundancy process, employers must be aware of the rigid legal requirements involved. This is particularly so when 20 or more employees are affected. Employers should ensure that that they plan properly and that they comply with the requirements of employment law. Consultation, consistency and fairness are vital to successfully carrying out the redundancy process. These principles will enable employers to minimise the negative effects to the business.

If employers are flexible and take action in a careful and sensitive way, they can save costs and protect their bottom line in the current difficult economic conditions.

Sheila Gunn is a partner specialising in employment law at leading UK law firm Shepherd and Wedderburn LLP.

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