This insight considers the implications of making voluntary redundancies as a measure to cut costs.
Although there is increasing talk about the promise of an upturn in the current economic climate, many companies are still facing financial difficulties and are looking for ways to cut costs.
Once measures such as ceasing to use agency staff and external contractors, restricting recruitment and banning overtime have been utilised, the next option for many companies is to consider more drastic measures such as cutting hours or pay, having temporary lay-offs or making redundancies or voluntary redundancies.
We are frequently asked whether voluntary redundancies are an option that companies should consider. Whilst there is no legal requirement to offer employees the opportunity to take voluntary redundancy, there can be advantages to making such an offer. The biggest advantage for employers is that it enables them to reduce the workforce in a more natural way with minimum damage to morale, minimum management time being spent and, hopefully, with a reduced risk of claims being brought (for example, for unfair dismissal).
In an ideal world, the exact number of people will volunteer as the employer needs to shed, they will all depart smoothly with an exit package they are happy with and the employer will be left with a streamlined workforce who all want to be at work.
In reality, however, matters tend to be more complex and employers will need to consider what they would do in the event they have too many (or insufficient) volunteers or, worse yet, if the wrong people volunteer. An employer who runs the volunteering process badly takes the risk of damaging morale and faces potential claims by dissatisfied employees.
The other difficult question an employer must consider is what level of financial package to offer. For an employee who is considering whether to take a voluntary package, there will be many factors to consider, however, one of the most common factors is how quickly they will be able to find alternative employment. In the current climate of higher levels and longer periods of unemployment, many employees would rather stay in work where they receive an income than take a gamble out on the job market. In these cash-strapped times, many employers will find the advantages of offering voluntary redundancy will be outweighed by the cost of putting together a package which will provide a sufficient incentive to lure the employees out of work and into unemployment.
Indeed, the risk of prolonged periods of unemployment is something any employee who is considering applying for voluntary redundancy should be aware of. What may seem like a generous lump sum at the start can soon dwindle if alternative employment is not found quickly. Furthermore, if an employee has a long length of service with their current employer, they should bear in mind that it would take some time to build up the legal protections associated with such long service with a new employer. Due to the way the law on unfair dismissal operates, it is undoubtedly true that employees in their first year of employment are more at risk of being dismissed than employees with more than one year’s service. Also, before accepting voluntary redundancy, employees should review the terms of any income protection or mortgage protection type insurance policy they may have, as many such policies will not pay out in the event of a voluntary redundancy.
If Voluntary Redundancies are being considered, then employers should bear in mind the following points:
- Consider offering Voluntary Redundancies at the start of the process before consultation beings. This will help save time on potentially needless consultation and reduces the potential damage to morale.
- Once you have decided to offer Voluntary Redundancies you should consider whether you will offer an enhanced redundancy package and, if so, how that will be calculated.
- Make it clear that you will consider all requests for Voluntary Redundancies but that it is at the company’s discretion whether to accept any application for voluntary redundancy, this will help guard against having disgruntled employees if you need to refuse requests either because you have too many volunteers or you need to retain a specific employee’s services.
- Make it clear that you may still have to make compulsory redundancies if you do not receive a sufficient number of appropriate volunteers.
- It is sensible to confirm to volunteers that if they are not selected, the fact that they volunteered will not be taken into account in any future decisions concerning them. Also, confirm that they can change their mind and withdraw their application before a specified date.
- In the event that you get more volunteers than you need you should ensure that you use selection criteria for deciding who to let go, which is fair and non-discriminatory.
For more information, please contact our Employment & HR team on 01332 340 211.