Managing the people agenda is crucial to riding out the downturn, warns PwC
03/09/2008

 
Companies should thinking creatively about how they reward and deploy their employees as alternatives to redundancies.

Managing the people agenda is crucial to riding out the downturn, warns PwC

Companies must incorporate greater flexibility in the way they manage their people to sustain their business strategy in adverse market conditions, according to PricewaterhouseCoopers LLP. And with a wave of negative economic news over the last 12 months, employment costs -- which include pay, employee benefits, national insurance contributions and administration -- require close scrutiny.

Debra De'Ath, director, PricewaterhouseCoopers LLP, commented: "Reducing headcount can be a knee-jerk reaction to difficult trading pressures but organisations need to remember making redundancies can prove costly, both in terms of payments in lieu of notice and recruiting new staff in an upturn. Companies in all sectors could benefit from thinking creatively about how they reward and deploy their employees as alternatives to redundancies."

Alternatives to reducing headcount

There are a number of potential alternatives to making employee redundancies. Businesses can consider introducing flexible working, job share arrangements or reduced hours. Other options include seconding staff to charities or clients, or encouraging employees to take career breaks.

"In a difficult job market, some people would rather keep their job under a different arrangement, such as with reduced hours, rather than be unemployed," said De'Ath. "Strategies like this also mean that when the market picks up it is easier, cheaper and quicker for companies to react," she added.

Employment costs and remuneration planning

Employment costs can account for up to two thirds of business costs and, in times of market uncertainty, it is unsurprising that CEOs put pressure on their HR and finance functions to manage these costs closely. Tactics for bringing costs under control range from improving expense management to assessing bonus and commission arrangements. Reviewing recruitment policies and processes, together with assessing the use of contractors, can also bring cost benefits.

De'Ath commented: "Employers and employees alike can benefit from cost-effective remuneration planning. In practice, this might mean introducing flexible remuneration and benefit plans or offering salary sacrifice options. Simple changes at no or low costs can result in significant financial savings for employers and enhanced benefits to employees."

Below are some examples how companies can improve their cash flow by managing their employment costs more effectively:

Employee share plan deductions
These are easily missed as the legislation (Schedule 23 Finance Act 2003) is still relatively new and can apply to many companies, especially for private companies where options are only exercised on a change in control, and therefore they have not previously been in a position to claim. Entrepreneurs who are thinking of selling a company or business could increase the sale price by looking more closely at their employee plans and/or employee benefit trust shareholdings to make sure this tax benefit is factored in.

Salary sacrifice arrangements
Salary sacrifice arrangements can help employers save on employment costs without reducing the number of their employees. They may be used to structure the provision of, for example, pension plans, childcare, mobile phones, accommodation, travel, car parking, staff restaurant/canteens and company cars. Managed well, they can be cost and time effective ways of providing benefits to employees yet still fully compliant from a tax, employment and consumer law perspective.

Reducing workforce
If reducing the size of the workforce becomes a necessity, there have been a number of changes in law since the last economic slowdown which companies must consider. For example, the business rationale that causes redundancies has been brought firmly into the consultation process by recent case law; HM Revenue & Customs' (HMRC) interpretation of when payments in lieu of notice (PILON) should be made is continuously changing; age discrimination laws affect selection processes and the legality of redundancy payments; and there have been several court challenges to incentive plans under restraint of trade and age discrimination laws. Companies can save significant sums with the right combination of tax and legal support.